Financial analysis Using financial statements to measure performance at Michigan State University MSU s financial statements Analyzing performance Professor Kirt C. Butler Department of Finance Broad College of Business Michigan State University November 23, 2015 Michigan State University, 2012
MSU Financial Stewardship Practices Support educational, research, and outreach programmatic needs. Recurring expenses should be funded with recurring revenues. Include funding for future needs using long-term financial framework to determine multi-year budgets. Deploy diverse revenue streams for funding programmatic needs, including donations and research activities. From a presentation by Mark Haas to the Board of Trustees Audit Committee, October 29, 2015 2
Fiscal Year 2014-15 Financial Overview The University has once again received a clean external audit opinion. Overall, MSU s financial position remains strong with a total of $3.4B in net position. Net position increased $206M (6.5%) primarily due to revenues from tuition, grants and contracts, and gifts. MSU continued to manage through uncertain impacts of state and federal budget constraints. From a presentation by Mark Haas to the Board of Trustees Audit Committee, October 29, 2015 3
Fiscal Year 2014-15 Financial Overview (Continued) Fiscal year 2014-15 tuition revenue increase reflects changes in rates, student credit hours and shifts in enrollment mix. Long-term trends have tuition rates + state appropriation revenues expected to grow at rate of inflation. Development of Facility for Rare Isotope Beams (FRIB) continues with $101M in state and federal funds received in current year ($233M project to date). Empower Extraordinary campaign commitments now total over $1B. From a presentation by Mark Haas to the Board of Trustees Audit Committee, October 29, 2015 4
Financial statements GASB vs restated Statement of Net Position Balance sheet - Measures an organization s assets and the sources of funds used to buy or build those assets Statement of Revenues, Expenses and Changes in Net Position Income statement - Measures operating performance during a period of time, such as the most recent fiscal year 5
The main balance sheet accounts Total assets = Liabilities & Net Worth Current assets Cash & equivalents Receivables Inventories Long-term assets Tangible assets (land, plant, equipment) Intangible assets Intellectual property Brand name, franchise Current liabilities Accounts payable (e.g., wages, taxes) Short-term debt Long-term liabilities Long term debt Capitalized leases Net worth (Net assets or position) 6
Items in the balance sheet Warning! Book value does not necessarily equal market value Book values for current assets and liabilities typically are close to market values (with the exception of inventory) Book values for long-term financial liabilities also typically are close to their market values Book values for long-term assets typically are valued at historical cost (with an adjustment for depreciation) and seldom reflect their market values 7
The main income statement items Revenues Costs of goods sold Selling, general and administrative expense Depreciation (a non-cash charge) ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- EBIT (earnings before interest and taxes) Interest expense ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Taxable income Tax ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net income Dividends ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Added to retained earnings (or net position) 8
Items in the income statement Warning! Accounting income and expenses do not necessarily equal cash flow Accounting values usually are close to cash flows But sometimes there are important differences - Overhead expenses (e.g., fringe benefits) might not be included - Other??? 9
Financial analysis at MSU To evaluate ongoing operations - achieve comparability over time - achieve comparability across institutional units (either MSU-v-competitor or unit-v-unit within MSU) - use financial ratios to make decisions To forecast and prepare for the future - forecast the sustainability of net income and cash flow - anticipate changes in investments - identify financing needs 10
MSU is near the top in B1G enrollment 60000 50000 40000 30000 20000 10000 0 IPEDS 2012-12 reporting 11
MSU lags in revenues, assets, and net worth 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Total assets Net worth Revenues Maryland and Rutgers not shown IPEDS 2012-12 reporting 12
MSU operating revenues & expenses ($ millions) 2,500 2,000 1,500 1,000 2,346 2,163 2,051 1,967 2,204 1,878 1,893 2,060 2,110 1,746 1,786 1,966 1,572 1,613 1,897 1,798 1,830 1,714 1,455 1,333 1,365 1,277 1,248 1,299 1,306 1,401 1,497 1,573 500-2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 13
Increasing reliance on tuition revenue ($ mil) 14
Statement of Net Position ($ millions) 2011 2012 2013 2014 2015 Current Assets: Cash and cash equivalents 19 14 44-9 Investments 175 217 286 326 312 Collateral from securities lending 13 15 - - - Accounts and interest receivable, net 170 143 145 142 168 Student loans and pledges receivable, net 33 37 24 22 25 Inventories and other assets 18 18 14 17 20 Total current assets 428 444 513 507 534 15
Statement of Net Position ($ millions) 2011 2012 2013 2014 2015 Noncurrent Assets: Restricted cash and cash equivalents 23-2 10 207 Restricted investments 87-99 6 - Endowment investments 1,395 1,369 1,584 2,082 2,242 Other investments 378 407 361 235 241 Student loans and pledges receivable, net 73 58 60 64 74 Investments in joint ventures and other 7 7 7 7 7 Derivative instruments - swap asset - - - - - Deferred outflows of hedging derivatives 36 - - - - Unamortized bond origination costs 5 4 - - - Capital assets, net 1,703 1,819 1,901 1,995 2,107 Total noncurrent assets 3,707 3,664 4,014 4,399 4,878 Total assets 4,135 4,108 4,527 4,906 5,412 Deferred Outflows of Resources - 83 61 60 62 16
Statement of Net Position ($ millions) Liabilities and Net Assets: 2011 2012 2013 2014 2015 Current liabilities: Accounts and interest payable 88 67 63 76 80 Accrued personnel costs 49 41 53 56 52 Obligations under securities lending 20 15 - - - Accrued self-insurance liabilities 15 14 14 15 14 Payroll taxes and other payroll deductions 22 8 27 25 28 Deposits held for others 32 27 24 25 34 Unearned revenues 86 102 120 125 137 Current long-term debt & other obligations 96 163 187 169 214 Total current liabilities 408 437 488 491 559 17
Statement of Net Position ($ millions) 2011 2012 2013 2014 2015 Noncurrent liabilities: Accrued personnel costs 32 33 34 34 33 Accrued self-insurance liabilities 7 7 8 6 7 Derivative instruments - swap liability 36 71 45 50 55 Net other postemployment benefit obligati 170 217 263 307 350 Long-term debt and other obligations 758 749 925 905 1,091 Total noncurrent liabilities 1,003 1,077 1,275 1,302 1,536 18
Statement of Net Position ($ millions) 2011 2012 2013 2014 2015 Net Assets: Invested in capital assets, net of related debt 991 967 937 983 1,055 Restricted - Nonexpendable 353 390 436 487 530 Restricted - Expendable 591 548 567 674 691 Unrestricted 789 772 885 1,029 1,103 Total net assets 2,724 2,677 2,825 3,173 3,379 Total liabilties and net assets 4,135 4,191 4,588 4,966 5,474 19
Statement of Net Position ($ millions) 2011 2012 2013 2014 2015 Change Assets Current assets 428 444 513 507 534 27 Noncurrent assets 3,707 3,664 4,014 4,399 4,878 479 Total assets 4,135 4,108 4,527 4,906 5,412 506 Deferred Outflows of Resources - 83 61 60 62 2 Liabilities Current liabilities 408 437 488 491 559 68 Noncurrent liabilities 1,003 1,077 1,275 1,302 1,536 234 Total liabilities 1,411 1,514 1,763 1,793 2,095 302 Net position Net investment in capital assets 991 967 937 983 1,055 72 Restricted nonexpendable 353 390 436 487 530 43 Restricted expendable 591 548 567 674 691 17 Unrestricted 789 772 885 1,029 1,103 74 Total net assets (position) 2,724 2,677 2,825 3,173 3,379 206 20
Big Ten Net Position $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 $13.1 (Billions) Big Ten Peers - 2014 $10.7 MSU 2014 $7.7 MSU 2015 incremental increase $6.6 $4.4 $4.2 $3.8 $3.6 $3.6 $3.6 $3.4 $3.1 $3.1 $1.8 $3.2 Note: Amounts listed are fiscal year 2014 totals, except for MSU which lists both fiscal year 2014 ($3.2B) and 2015 ($3.4B) totals. Unless otherwise noted, amounts represent consolidated financials of the University and may include multiple campuses, if applicable. 21
Millions Assets Increased $506 Million $5,500 $4,500 $5,412 $4,906 527 343 295 251 $ Change 184 Cash and investments (includes unspent bond proceeds) $3,500 2,317 2,483 44 Receivables, inventories, and other $2,500 $1,500 166 Long-term investments (including new gifts and transfers from short-term investments) $500 1,995 2,107 112 Capital assets (land & buildings) $(500) FY2013-14 FY2014-15 506 Total 22
Millions Liabilities Increased $302 Million $2,100 $1,800 $1,500 $1,200 $2,095 80 83 $ Change $1,793 85 4 76 137 72 55 89 11 125 350 50 (4) 307 Accounts payable Other liabilities (self insurance, payroll taxes) Personnel costs (sick and vacation accrued time) $900 12 Revenue received in advance of services provided (summer school, athletic tickets) $600 1,074 1,305 5 43 Interest rate swaps liability OPEB $300 231 Debt $- FY2013-14 FY2014-15 302 Total 23
Millions Unrestricted Net Position Increased $74 Million $1,400 $1,200 $1,000 $800 $600 $400 $200 $1,029 188 100 265 345 434 $1,103 164 99 299 371 514 $ Change (24) (1) 34 26 80 QUASI/TERM ENDOWMENT INVESTMENTS: Represent expendable funds that by Board designation, the principal may not be expended. RETIREMENT AND INSURANCE: Includes reserves for post-employment health benefits and the University s Noncontributory Retirement Program (UNCRP). DEPARTMENTAL WORKING CAPITAL: Represents balances designed to ensure the stable, efficient operations of University departments. PROGRAMMATIC COMMITMENTS: Represents funds provided for commitments and projects which generally will be completed within the subsequent fiscal year. CAPITAL AND INFRASTRUCTURE: Includes reserves for various University building, infrastructure, and programmatic needs related to construction and technology changes. $- $(200) $(400) 4 6-307 -350 2 (43) UNCOMMITTED: Represent general fund funds not specifically designated. Amount would fund approximately 1 day of operating expenses. OTHER POST-EMPLOYMENT BENEFITS (OPEB): Includes accumulated annual OPEB accrual. $(600) FY2013-14 FY2014-15 74 Total 24
Big Ten Unrestricted Net Position $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 (Billions) $6.3 Big Ten Peers - 2014 MSU 2014 MSU 2015 incremental increase $3.4 $3.2 $2.0 $1.5 $1.5 $1.5 $1.4 $1.1 $0.8 $0.7 $0.7 $1.0 $0.4 $0.4 Note: Amounts listed are fiscal year 2014 totals, except for MSU which lists both fiscal year 2014 ($1.0) and 2015 ($1.1) totals. Unless otherwise noted, amounts represent consolidated financials of the University and may include multiple campuses, if applicable. 25
MSU s Sources and Uses of Funds Sources of funds MSU influenced Tuition and fees Self-supporting activities Spending policy distributions General fund carry-forwards Debt proceeds Gifts and grants External influenced Investment income State appropriations Uses of funds MSU influenced Employee wages & benefits Construction spending Financial aid Vendor expenses External influenced Investment loss 26
Statement of Revenues, Expenses and Changes in Net Assets ($ millions) 2011 2012 2013 2014 2015 Operating Revenues: Student tuition and fees, net of allowance 568 640 697 753 797 State of Michigan grants and contracts 10 10 9 9 10 Federal grants and contracts 297 330 314 309 324 Local and private sponsored programs 66 65 73 71 81 Interest and fees on student loans 1 1 1 1 1 Departmental activities 167 165 179 174 203 Auxiliary activities 280 293 305 303 326 Operating revenues 1,389 1,504 1,578 1,620 1,742 27
Statement of Revenues, Expenses and Changes in Net Assets ($ millions) Operating Expenses: 2011 2012 2013 2014 2015 Instruction and departmental research 561 575 589 632 669 Research 294 319 329 312 328 Public service 221 210 233 222 227 Academic support 78 82 82 95 105 Student services 32 32 46 49 52 Scholarships and fellowships 53 55 56 60 63 Institutional support 94 103 113 115 128 Operation and maintenance of plant 138 149 144 139 129 Auxiliary activities 269 275 289 289 307 Depreciation 116 128 139 150 155 Other expenses, net 2 3 4 6 4 Operating expenses 1,858 1,931 2,024 2,069 2,167 Operating loss (469) (427) (446) (449) (425) 28
Statement of Revenues, Expenses and Changes in Net Assets ($ millions) Nonoperating Revenues (Expenses): 2011 2012 2013 2014 2015 State operating appropriations 284 241 245 250 264 State agriculture experiment station appropriation 33 29 29 30 32 State cooperative extension service appropriation 29 24 25 26 28 State appropriated federal fiscal stabilization funds - - - - - Federal Pell grant revenue 43 39 38 37 38 Gifts 46 52 46 55 73 Net investment income (loss) 289 (22) 187 324 93 Interest expense on capital asset related debt (39) (35) (36) (41) (37) Other nonoperating revenues, net 5 6 5 6 1 Net nonoperating revenues 690 334 539 687 492 Income (loss) before other revenues 221 (93) 93 238 67 29
Statement of Revenues, Expenses and Changes in Net Assets ($ millions) 2011 2012 2013 2014 2015 Total operating revenues 1,389 1,504 1,578 1,620 1,742 Total operating expenses 1,858 1,931 2,024 2,069 2,167 Net operating income (loss) (469) (427) (446) (449) (425) Net nonoperating revenues 690 334 539 687 492 Income (loss) before Other 221 (93) 93 238 67 State capital appropriations - 1 2 30 48 Capital grants and gifts 18 15 14 36 54 Additions to permanent endowments 17 30 39 44 37 Increase (decrease) in net position 256 (47) 148 348 206 30
Accounting and common sense 2014 GM annual report (p. 26) Restated operating performance Operating Cash Flow $10,132 Less: Capital Expenditures and Adjustments -$6,986 Automotive Free Cash Flow $3,146 Management believes these non-gaap measures provide meaningful supplemental information regarding GM s operating results and liquidity because they exclude amounts that management does not consider when assessing and measuring operational and financial performance (They are) used by management in its financial and operational decision-making. Similarly, Mark Haas restated MSU s operating results in his 2014 report to the Board of Trustees 31
Operating statement ($ millions) Revenues: 2011 2012 2013 2014 2015 Change Student tuition and fees, net of allowance 568 640 697 753 797 44 State of Michigan grants and contracts 10 10 9 9 10 1 Federal grants and contracts (including Pell) 340 369 352 346 362 16 Local and private sponsored programs 66 65 73 71 81 10 Interest and fees on student loans 1 1 1 1 1 - Departmental activities 167 165 179 174 203 29 Auxiliary activities 280 293 305 303 326 23 State appropriations (including AgBio, & MSUE) 346 294 299 306 324 18 Gifts 46 52 46 55 73 18 Capital grants, gifts, and appropriations 18 15 17 66 102 36 Additions to permanent endowments 17 30 38 44 37 (7) Investment income budgeted for operations 29 27 29 29 29 - Other revenues, net 5 6 6 6 1 (5) Subtotal - revenues 1,893 1,967 2,051 2,163 2,346 183 32
Operating statement ($ millions) Expenses: 2011 2012 2013 2014 2015 Change Instruction and departmental research 561 575 589 632 669 37 Research 294 319 329 312 328 16 Public service 221 209 234 222 227 5 Academic support 78 82 82 95 105 10 Student services 32 32 46 49 52 3 Scholarships and fellowships 53 55 56 60 63 3 Institutional support 94 103 113 115 128 13 Operation and maintenance of plant 138 149 144 139 129 (10) Auxiliary activities 269 275 289 289 307 18 Depreciation 116 128 139 150 155 5 Interest expense on capital asset related debt 39 35 36 41 37 (4) Other expenses, net 2 3 4 6 4 (2) Subtotal - expenses 1,897 1,965 2,061 2,110 2,204 94 MSU resources are mission focused. FY14-15 amount totals $1.3b (an increase of $68m) and represents over 60% of total expenses. 33
Operating statement ($ millions) 2011 2012 2013 2014 2015 Change Operating revenues 1,893 1,967 2,051 2,163 2,346 183 Operating expenses 1,897 1,965 2,061 2,110 2,204 94 Net, before investments (4) 2 (10) 53 142 89 Net investment income (loss) 260 (49) 158 295 64 (231) Net income (loss) 256 (47) 148 348 206 (142) 34
Auxiliary activities - important to the mission of MSU Major auxiliary activities as a component of overall University revenues/expenses RHS 10% Health Team 4% Athletics 4% Instruction, Research, Outreach, and other activities 82% 35
Major Auxiliary activities historical trend (in millions) $300 $250 $200 $150 $100 $50 $0 $125 $100 $75 $50 $25 $0 RHS $242 $239 $241 $237 $251 $245 $222 $223 2012 2013 2014 2015 Athletics $103 $97 $88 $87 $76 $81 $75 $67 2012 2013 2014 2015* $125 $100 $75 $50 $25 $0 Revenues Expenses and Net Transfers MSU HealthTeam $104 $104 $104 $109 $106 $105 $106 $107 2012 2013 2014 2015 * In 2014-15, MSU improved the reporting of athletic game guarantees/settlement payments for more consistency with peer institutions. $7M of game guarantee payments previously reported as negative revenue, is now reported as an expense. In addition, sports broadcasting, sponsorships and conference distributions increased. 36
37
Financial statement analysis Financial statement analysis uses ratios and other simple measures to evaluate the financial health and performance of an organization at a point in time or over time relative to peer institutions or relative to expectations for planning and strategy purposes 38
Ratios and common sense Many ratios are available to measure financial health Liquidity = our ability to meet short-term needs Efficiency = output / input Leverage = impact of debt on the balance sheet Performance = have we met expectations? We need to use common sense in selecting which ratios to use in financial analysis. Ratios that are relevant for one entity (e.g., an MSU unit) may not be relevant for measuring financial health at another unit, and vice versa. 39
Ratios and common sense 40
Measuring financial health at MSU Ratios used in Higher Ed to evaluate ongoing operations * Primary reserve ratio (in years) = Total expendable net assets / Total expenses Net operating revenue ratio (%) = Total income / Total revenues Viability (or coverage) ratio (%) = Total expendable net assets / Total LT debt Return on net assets ratio (%) = Change in net assets / Total net assets Composite financial index Resource sufficiency Operating results Leverage Asset management Overall financial health * Strategic Financial Analysis for Higher Education, 7e, 2010, by Prager, Sealy & Co. LLC, KPMG LLP, and Attain LLC. 41
Primary reserve ratio = Total expendable net assets / Total expenses measures how long we could operate using expendable reserves A higher primary reserve ratio indicates a greater ability to meet short-term operating and financial obligations MSU s 2015 ratio of 0.81 years (or nearly 10 months) is near the median for B1G universities This liquidity measure indicates that MSU could fund about ten months worth of expenses with the expendable net assets currently on hand 42
Primary reserve ratio = Total expendable net assets / Total expenses measures how long we could operate using expendable reserves 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total expendable net assets 1027 1091 1228 1231 924 1034 1380 1320 1452 1703 1794 Total expenses 1401 1497 1573 1714 1798 1829 1897 1966 2060 2110 2204 Primary reserve ratio 0.73 0.73 0.78 0.72 0.51 0.57 0.73 0.67 0.71 0.81 0.81 (in months) 8.80 8.75 9.37 8.62 6.17 6.78 8.72 8.05 8.46 9.68 9.77 Median = 8.7 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 43
Primary reserve ratio versus B1G (2011 ) 44
Net operating revenue ratio = Total operating & nonoperating income / Total revenues measures if operating activities provided a surplus or deficit MSU s 2015 ratio of 0.10 or 10% is firmly a surplus A surplus is desirable, but a large surplus might not be desirable if it means we are not contributing to our mission This ratio is volatile for all universities because it varies with investment performance & not just operations MSU s Investment Spending Policy uses a 5-year average, and the 2015 net operating revenue ratio is close to our historical performance 45
Net operating revenue ratio = Total operating & nonoperating income / Total revenues measures if operating activities provided a surplus or deficit 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total oper/nonoper income 190 213 267 87 (267) 196 295 (12) 184 389 243 Total revenues 1578 1694 1824 1781 1508 2006 2153 1919 2208 2458 2410 Net operating revenue ratio 0.12 0.13 0.15 0.05 (0.18) 0.10 0.14 (0.01) 0.08 0.16 0.10 Median = 0.10 0.2 0.1 0-0.1-0.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 46
Net operating revenue ratio versus B1G (2011 ) 47
Return on net asset ratio = Change in net assets / Total net assets (beginning-of-year) a measure of the total return on investment of net assets for the year MSU s 2015 ratio of 6% is similar to our B1G peers and typical of our recent performance Deficits are bad, but we also need to pursue our mission This ratio is volatile for all universities because it varies with investment performance & not just operations MSU s Investment Spending Policy considers our 5-year investment performance when determining how much of our investment earnings to make available for operations 48
Return on net asset ratio = Change in net assets / Total net assets (beginning-of-year) a measure of the total return on investment of net assets for the year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Change in net assets 177 197 251 67 (290) 177 256 (47) 148 348 206 Total net assets 1893 2070 2267 2514 2581 2291 2468 2724 2677 2825 3173 Return on net assets ratio 0.09 0.10 0.11 0.03 (0.11) 0.08 0.10 (0.02) 0.06 0.12 0.06 0.2 Median = 0.08 0.1 0-0.1-0.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 49
Return on net assets versus B1G (2011 ) 50
Viability (or coverage) ratio = Total expendable net assets / Total long-term debt measures the availability of expendable net assets to payoff debt MSU s 2015 ratio of 1.6 means that we have enough in expendable net assets to pay off debt 1.6 times The 5-year average is expendable net assets of 1.5 times debt This measure is important because it influences our bond rating and cost of borrowing Debt was reduced by $39 million in 2013-2014, after increasing by $200 million in 2012-2013 to fund infrastructure Other 7% CP development. 15% FY2014-15 51 Bonds 78%
Viability (or coverage) ratio = Total expendable net assets / Total long-term debt measures the availability of expendable net assets to payoff debt 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total expendable net assets 1027 1091 1228 1231 924 1034 1380 1320 1452 1703 1794 Total long-term debt 484 478 594 570 579 851 854 912 1112 1074 1305 Viability ratio 2.12 2.28 2.07 2.16 1.60 1.22 1.62 1.45 1.31 1.59 1.37 Median = 1.6 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 52
B1G Viability ratios versus B1G (2011 ) 53
Moody s B1G Credit ratings (S&P ratings are similar) Aaa Aa1 Aa2 Aa3 as of 11/17/2013 54
Debt Increased $231 Million FY2013-14 FY2014-15 $ Change (Amounts in Millions) CP 15% Other 7% FY2014-15 Bonds $ 844 $ 1,018 $ 174 Commercial Paper (CP) 148 192 44 Other Debt (e.g. campus-based 82 95 13 student loans and bond premiums) Total Debt $ 1,074 $ 1,305 $ 231 Bonds 78% Change in debt summary (in millions): Bonds CP Other Total Debt issued for: Residential halls and facilities $ 57 $ 19 $ - $ 76 Research facilities 23 18-41 Athletic facilities 13 9-22 Other auxiliary facilities (Parking) 16 - - 16 Utilities and infrastructure 34 10-44 Refunding of debt 50 54-104 Original issue premium - 2015A - - 15 15 Debt reduced by: Scheduled debt service payments (19) (12) (2) (33) Refunding of debt - (54) - (54) Net change in debt $ 174 $ 44 $ 13 $ 231 CP 14% Other 8% FY2013-14 Bonds 78% 55
Average cost of capital is 3.4% Debt Portfolio FY 2013-14 FY 2014-15 $ Change (in millions) Fixed Rate $ 721 $ 908 $ 187 Variable Rate - CP 66 111 45 Traditional Variable Rate 6 6 - Synthetic Fixed Rate 281 280 (1) Total Debt $ 1,074 $ 1,305 $ 231 56
Composite Financial Index (CFI) The Composite Financial Index (CFI) is a weighted average of the other 4 ratios, composed of strength factors and index weights. For MSU, it is calculated as: Composite Financial Index (CFI) = ( Primary reserve ratio / 0.133 ) * 0.35 + ( Net operating revenues ratio / 0.007 ) * 0.10 + ( Return on net assets ratio / 0.020 ) * 0.20 + ( Viability ratio / 0.417 ) * 0.35 57
Composite Financial Index (CFI) The Composite financial index (CFI) is a weighted average of the other four ratios CFI range Recommended action * -1 to 1 Assess the viability of the institution s survival 0 to 2 Reengineer the institution 2 to 4 Direct resources toward transformation 4 to 6 Focus resources to compete MSU 6 to 8 Experiment with new initiatives > 8 Deploy resources to achieve a robust mission * Fitzgerald, Moody s Ratings Approach for Private Colleges and Universities, (Moody s Investors Services, 1999). 58
Composite financial index (CFI) a weighted average of the other four ratios This ratio also varies with investment performance & not just operations because it is a function of the other ratios MSU s 2015 ratio of 5.4 is solidly in the focus resources to compete category Our CFI also compares favorably to our B1G peers We must continue to work on our outputs and processes in order to achieve continued success 59
Composite financial index (CFI) a weighted average of the other four ratios 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Primary reserve 1.929 1.918 2.055 1.889 1.353 1.487 1.913 1.766 1.855 2.124 2.142 Net operating 1.714 1.800 2.086 0.700-2.529 1.400 1.957-0.086 1.186 2.257 1.443 Return on net assets 0.940 0.950 1.110 0.270-1.120 0.770 1.040-0.170 0.550 1.230 0.650 Viability 1.781 1.915 1.735 1.813 1.340 1.020 1.356 1.215 1.096 1.331 1.154 CFI SCORE 6.364 6.584 6.986 4.672-0.956 4.677 6.267 2.725 4.687 6.942 5.389 Median = 5.4 8 6 4 2 0-2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 60
Composite Financial Index (CFI) versus B1G (2011 ) 7 6 5 4 3 2 1 0 61
Allocating financial resources to mission What is the mission? Are resources sufficient and flexible? Does financial asset performance support the strategic direction? Do operating results indicate the institution is living within available resources? Is debt managed strategically to advance the mission? Priorities must be set! Critical to the mission Very important to the mission Important to the mission Less important to the mission Not important to the mission 62
63