KEY FINANCIAL METRICS & DASHBOARD REPORTING FOR · PDF fileKEY FINANCIAL METRICS & DASHBOARD...

1/26/2016

1

KEY FINANCIAL METRICS & DASHBOARD REPORTING FOR HIGHER EDUCATION INSTITUTIONS

Adam SmithDirector

[email protected]

Jim CreedenPartner

[email protected]

January 26, 2016

1/26/2016

2

• Participate in entire webinar• Answer polls when they are provided• If you are viewing this webinar in a group

Complete group attendance form with• Title & date of live webinar• Your company name• Your printed name, signature & email address

All group attendance sheets must be submitted to [email protected] within 24 hours of live webinar Answer polls when they are provided

• If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar

TO RECEIVE CPE CREDIT

Importance of Financial Metrics & Ratio Analysis

Review & Evaluate Key Financial Metrics & Ratios

Presenting Results in Dashboards

Composite Financial Index (CFI) & Linkage to Strategic Planning

GOALS FOR TODAY

1/26/2016

3

• Why important? Recent economic factors & industry pressures Transparency Accountability

• Identification of financial risks• Method of communication to stakeholders• Risk with peer comparisons Apples vs. oranges?

FINANCIAL METRIC & RATIO ANALYSIS

• Four broad factors in assessing ratings Market profile Operating performance Wealth & liquidity Leverage

• Self-assessment & benchmarking

MOODY’S & S&P RATING CONSIDERATIONS

1/26/2016

4

• Positive indicators of self-assessment & benchmarking• Identification of key performance indicators• Monitoring of key performance indicators• Examples of leadership actions based on performance relative to key indicators• Comparison to carefully selected set of peers

MOODY’S & S&P RATING CONSIDERATIONS

1/26/2016

5

Resource Sufficiency & Liquidity RatiosRATIO/METRIC

• Primary reserve ratio• Monthly/annual days of

cash on hand• Monthly/annual liquidity• Expendable financial

resources• Monthly/annual liquidity to

demand debt

OVERALL OBJECTIVES

• Sufficient amount of funds to meet current & future operating & capital requirements

• Ability to achieve & sustain a level of resources sufficient to realize mission

• Insight about capacity to manage through stress

• Operating flexibility

Primary Reserve Ratio Calculation

Private Institution

Public Institution

Numerator Expendable Net Assets

Expendable net assets plus FASB CU expendable

net assets

Denominator Total ExpensesTotal expenses plus FASB CU

total expenses

• Compares expendable net assets to total expenses

• Snapshot of financial strength & flexibility

• Indicates how long institution can function using expendable reserves without relying on additional net assets generated by operations

• Assets that could be access quickly to spend to satisfy obligations

• Helps understand affordability of strategic plans

Source: Strategic Financial Analysis in Higher Education, Seventh Edition (KPMG, Prager Sealy and Co., and Attain, 2010)

1/26/2016

6

0.56

0.65

0.70 0.70

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2012 2013 2014 2015

Primary Reserve

Represents a sample of 40 Midwest based private institutions

Monthly/Annual Days of Cash On Hand

Numerator Monthly/AnnualLiquidity X 365

Denominator

Total expenses less: Deprecation

Other large noncash expenses

• Measure number of days an institution is able to operate from unrestricted liquidity within one month & one year

• Measure of operating flexibility & cushion

• Highly correlated with Moody’s ratings

1/26/2016

7

5564

6261

0

10

20

30

40

50

60

70

2012 2013 2014 2015

Days of Cash on Hand

Represents a sample of 40 Midwest based private institutions

Monthly/Annual Liquidity

Funds available within one month (one year)Consists of unrestricted operating accts or Other non-endowment unrestricted funds

Lesser ofFunds available within one month (one year) in endowment or other long-term funds orUnrestricted Board Designated Endowment as presented in footnotes or self-reported

(public institutions)

• Distinguishing between wealth & liquidity

• Takes into account donor restrictions, accounting rules, investment strategies, etc.

• Assess how much liquidity to meet large unexpected payments, demand or accelerated payments on debt

1/26/2016

8

Expendable Financial Resources

Total unrestricted & temporarily restricted net assets

Long-term debt, less net investment in plant

• Indicates amount of net assets spendable in long run


1.001.13

1.28 1.32

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2012 2013 2014 2015

Expendable Financial Resources to Direct Debt

Represents a sample of 40 Midwest-based private institutions

1/26/2016

9

Monthly/Annual Liquidity to Demand Debt

Numerator Monthly/Annual Liquidity Measure

Denominator

Demand Debt:All VRDOs

Commercial PaperPut Bonds

Outstanding Lines of CreditLoans or private placements

with put features(Excludes regularly scheduled

principal maturities)

• Liquidity available to cover outstanding demand debt

Operating MetricsRATIO/METRIC

• Net operating revenues ratio

• Cash income ratio• Net tuition dependency• Net tuition per student FTE

ratio• Deferred maintenance

ratio• Operating income ratio

OVERALL OBJECTIVES

• Sufficient amount of funds to meet current & future operating & capital requirements

• Ability to achieve & sustain resources

• Insight about capacity to manage through stress

• Operating flexibility

1/26/2016

10

Net Operating Revenues RatioPrivate

InstitutionsPublic

Institutions

Numerator

Excess(deficiency) of unrestricted

operating revenues over unrestricted

operating expenses

Operatingincome (Loss) plus net non-

operating revenues

(expenses) plus FASB CU change in unrestricted

net assets

DenominatorTotal unrestricted

operating revenue

Operatingrevenues plus non-operating revenues plus FASB CU total unrestricted

revenue

• Indicates whether total unrestricted activities resulted in surplus or deficit

• Living within means?

• Positive & higher ratio show stronger performance as a result of year’s activities

• Pattern of large deficits or surpluses can be revealing


Cash Income RatioPrivate

InstitutionsPublic

Institutions

NumeratorNet cash provided

by operating activities

Cash provided from operations plus cash received

from appropriations foroperating purposes plus gifts

& grants for operating purposes plus FASB CU net cash provided by operating

activities

DenominatorTotal unrestricted income excluding

gains or losses

Operating revenues plus appropriations revenues for operating purposes plus gifts

& grants revenues for operating purposes plus FASB CU total unrestricted income,

excluding gains & losses

• Good indication of an institution’s liquidity

• A higher ratio provides institution with a greater amount of flexibility in its operations


1/26/2016

11

Operating Income Ratio

All Institutions

Numerator

Operating income(excludes investment

income, contributions, net assets released from

restrictions)

Denominator Educational & general expenses

• Demonstrates extent to which current-year activities have contributed to overall operations

• Measures institutional self-sufficiency

• Highlights variability of this source of income & need to maintain quality & market demand


Deferred Maintenance Ratio Calculation

Private Institutions

Public Institutions

NumeratorOutstandingmaintenance requirements

Outstandingmaintenance requirements

Denominator Expendable net assets


net assets

• Increasing ratio is an indicator of growing deferred maintenance & an aging plant

• A decline in this ratio must be viewed in context of other issues affecting institution, such as large investments in new facilities


1/26/2016

12

Net Tuition Dependency Ratio

All Institutions

Numerator Net Tuition

DenominatorTotal Revenue

(Includes investment return)

• Dependency on tuition & fees

• Shows relative importance of revenue stream

• An increasing trend or over dependence isn’t desirable


Net Tuition Per Student FTE Ratio

• Analyzed with view of tuition discounting & aid

• Increases show generating more per student

All Institutions

Numerator Net tuition

Denominator Full-time equivalent students


1/26/2016

13

Asset Performance

Ratio/Metric• Return on net assets• Capitalization ratio• Composition of equity ratio

Overall Objectives• Is net asset growth sufficient?• Capitalization provide

flexibility?• Right type of net asset

growth to achieve objectives• Sufficiently invested in

financial assets

Return on Net Assets Ratio


Public Institutions

Numerator Change in net assets

Change in net assets plus

FASB CU change in net assets

Denominator Total net assetsTotal net assets

plus FASB CUtotal net assets

• Measure of whether or not institution’s resources are growing

• Decline in this ratio may be appropriate if it reflects a strategy that will better fulfill institution’s mission

• Improving trend– Institution is increasing net

assets– Can set aside resources to

strengthen future financial flexibility


1/26/2016

14

Capitalization Ratio

Numerator Modified Net Assets

Denominator Modified Total Assets

• Determines financial flexibility on an accumulated return basis

• A high capitalization implies– Financing flexibility– May not be leveraging

assets & too much invested in physical assets


Composition of Equity Ratio

Numerator

Financial Assets(All assets expect

PP&E)

Denominator Physical assets

• Reveals allocation of equity among different types of assets – primarily physical & financial

• Stronger institutions typically have a ratio in excess of 1

• Equilibrium of investment for institution – tradeoffs between investment for current generation vs. investment for future generation


1/26/2016

15

Debt Management & Capital

Ratio/Metric

• Viability ratio• Debt burden ratio• Debt service coverage ratio• Age of facility• Interest burden

Overall Objectives

• Managing debt strategically?• How much debt can be

afforded?• Methods for accessing

additional resources to support mission & objectives

Viability Ratio


Public Institutions

Numerator Expendable net assets


net assets

Denominator Plant-related debt

Plant-related debt plus FASB

CU plant-relateddebt

• Indicates availability of resources to cover debt

• Generally a ratio range of 1.25x to 2.0x indicates a strong creditworthy institution


1/26/2016

16

Debt Burden Ratio Calculation


Public Institutions

Numerator Debt serviceDebt service plus FASB CU debt service

Denominator Total expenditures

Total expenditures plus FASB CU

total expenditures

• Primarily measures likelihood that you can repay your existing loans

• The higher the debt burden ratio, less of your income is disposable


Debt Service Coverage RatioPrivate

InstitutionsPublic

Institutions

Numerator

Adjusted change in unrestricted net

assets from operations

Net operating income plus

nonoperating revenues plus

interest expense plus depreciation

plus FASB CU adjusted change in

net assets

Denominator Debt service Debt service plus CU debt service

• Amount of cash flow available to meet annual interest & payments on debt

• Comfort level that institution has income to cover debt burden

• DSR of less than 1 means a negative cash flow


1/26/2016

17

Age of Facilities Ratio Calculation


Public Institutions

Numerator Accumulated depreciation

Accumulateddepreciation plus

FASB CU accumulated depreciation

Denominator Depreciation expense

Depreciation expense plus FASB

CU depreciation expense

• Provides rough sense of aging of facilities & potential need for future resources to be invested into facilities

• Low ratio– Generally good– Indicates recent investment in

plant– “Intangible asset”

• High ratio– Generally not good– Indicates deferred

reinvestment in plant– Will require significant

expenditures in future– “Unrecorded liability”


12

13 1313

56789

1011121314

2012 2013 2014 2015

Age of Facilities

Represents a sample of 40 Midwest-based private institutions

1/26/2016

18

Interest Burden Calculation


Public Institutions

Numerator Interest expense

Interest expense plus FASB CU

interest expense

Denominator Total expenditures

Total expenditures plus FASB CU total

expenditures

• Target range should be no greater than 5% - 6%

• Principal is excluded from this ratio

• More useful in perpetual debt structure


• Developed by KPMG & Prager McCarthy and Sealy, LLC in late 1990s • Developed specifically for higher education institutions• Widely accepted set of ratios & overall measurement of financial health• Four core ratios

• Primary reserve ratio• Net operating revenues ratio• Return on net assets ratio• Viability ratio

COMPOSITE FINANCIAL INDEX

1/26/2016

19

• Four ratios weighted & scored on scale• Creates single score of financial health• Single score allows weakness in one ratio to be offset by strength in

another ratio

COMPOSITE FINANCIAL INDEX

Ratios computed

Converted to strength factor

Factors weighted

Four numbers totaled

• Scores do not have precision• Indicators of ranges of financial health• Best served calculated over time period• Does not include a “deferred maintenance” factor• Provides opportunity for constant assessment of institutional performance• Stated graphically

CFI THOUGHTS & IMPLICATIONS

1/26/2016

20

CFI SCALE

Scale for Converting Core Ratios to Strength Factors

SCORING SCALE 1 3 10

Primary Reserve Ratio 0.133x .4x 1.33xNet Operating Revenues Ratio:

Private Institutions 0.7% 2% 7%Public Institutions 1.3% 4% 13%

Return on Net Assets Ratio 2.0% 6% 20%Viability Ratio 0.417% 1.25x 4.17x

1/26/2016

21

Weighting Patterns

RatioInstitutions with Long-Term Debt

Institutions with No Long-Term Debt

Primary Reserve 35% 55%

Net Operating Revenues 10% 15%

Return on Net Assets 20% 30%

Viability Ratio 35% --

• Liberal arts institutions• Non-urban setting• Enrollment approximately 1,300

Peer Institution Profile Used for Analysis

1/26/2016

22

2013 - 2015 CFI Scores for Peer Institutions

Ratio 2013 2014 2015Primary reserve 2.71 3.19 3.45

Return on net assets

0.81 0.59 0.28

Net operating revenue ratio

1.35 0.70 -0.24

Viability 0.94 1.07 0.88

CFI Score 5.81 5.55 4.37

Graphic Financial ProfilePRIMARY RESERVE RATIO

1010

10 NET OPERATING REVENUE RATIO

10VIABILITY RATIO

10RETURN ON NETASSETS RATIO

3

3

3

3

1/26/2016

23

2015 Graphic Financial Profile1010

10

10

10

3

3

3

3

CFI SCALE

2015 2014

2013

3 year average

1/26/2016

24

Linking Mission to Strategic & Other Plans

Strategic Plan(Goals, Strategies,

Key Metrics)

Institutional Mission

Institution RiskManagement Summary

Institution Wide Plans(Academic, Research, Facilities, Operating & Capital Budgets, etc.)

Institutional Academic & Administrative Processes


• How does institution evaluate & address• Financial risks • Operating• Capital

• What is institution’s liquidity & how does it affect operations?• Is debt used strategically?• Are financial resources allocated to support institutional strategies?• What is institution’s overall financial health?

INSTITUTION-WIDE STRATEGIC FINANCIAL QUESTIONS


1/26/2016

25

Benefits of Dashboard Reporting • Dashboard popularity continues to rise• Provides efficiency in analysis vs. spreadsheets &

reports• Identify trends more easily & efficiently • Simple way to line up goals/strategies to

performance

Dashboard Example

1/26/2016

26

Endowment Market Value Endowment Market Value158 10.4

158 8.3137 in mill ions 8.3

Change in Endowment Total Gifts and Grants7.50% 40%

7.50% 37%-8.40% 37%

Spending Rate Faculty5.00%

5.00% Student/Faculty5.00% 12:1

11.6:1Donor-Supported Aid 11:1

20.80%17.60% Alumni Participation

17.60% 93%89%

Annual Operating Margin 89%2.80%

2.80%1.30% 0%

4%Return on Net Assets 4%

7.30%7.30%

-5.70%

Key: Current Value Direction of change Importance of changeHighest value for past 5 years 22% higher blue =better

20% lower red =worseLowest value for past 5 year 2% no change

Finance Advancement

Dashboard Example

2011-2012 2012-2013 2013-2014 2014-2015 1 yr change 1 yr goal 5 yr trend 5 yr goalFT degree enrollment Down UpNet tuition per FTE Up UpNet tuition dependency Up UpCFI Down UpDays of cash on hand Down UpDebt Burden Ratio Up Up/Up

Expendable Financial Resources UpAge of Facil ities Down UpEndowment per FTE Down UpPrimary Reserve Ratio Up Up

Strategic Direction

Dashboard Example

1/26/2016

27

Moody’s

1/26/2016

28

QUESTIONS?

CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org.

The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars.

1/26/2016

29

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email BKD Learning & Development Department at [email protected]

CPE CREDIT

THANK YOU!FOR MORE INFORMATION

Jim Creeden // [email protected]

Adam Smith // [email protected]

1/26/2016

30

Date post:	04-Feb-2018
Category:	Documents
Upload:	hakien
View:	228 times
Download:	2 times

KEY FINANCIAL METRICS & DASHBOARD REPORTING FOR · PDF fileKEY FINANCIAL METRICS & DASHBOARD...

Documents