DOCUMENT RESUME BD 198 753 Dickmeyer, Nathan ...Mid-America, Inc. Three task force members, Robert...

BD 198 753

AUTHORTITLE

INSTITUTION

SPCNS AGENCYFEPORT NOPUB DATENOTEAVAILABLE FROM

EDFS PRICECESCRIPTORS

DOCUMENT RESUME

HE 013 481

Dickmeyer, Nathan: Hughes, K. ScottFinancial Self-Assessment: A Workbook forColleges.National Association of Coll. and Univ. BusinessOfficers, Washington, C.C.EXXON Education Foundation, New York, N.Y.ISBN-0-915164-11-6BO130p.National Association of College and UniversityBusiness Officers, One Dupont Circle, Suite 510,Washington, DC 200 36 ($15.001.

MF01 Plus Postage. PC Not Available from EDRS.College Administration: *College Planning:Comparative Analysis: Educational Finance: EvaluationMethods: *Financial Needs: Financial Policy:Financial Support: Higher Education: institutionalResearch: Mathematical Formulas: *Needs Assessment:*Self Evaluation (Groups): *Statistical Analysis:Statistical Data: *Worksheets

ABSTRACTIn order to assist college and university officials

evaluating their institution's financial condition, a simplifiedworkbook aprrcach is presented. The approach encouragesadministratcrs to systematically examine the financial condition oftheir colleges with a tested and specified set of data-gathering andcomputational steps. The workbook approach also explains therelationships among the statistics and how those relationships can beused to develop a financial profile. The workbock contains medianvalues that allow statistical comparisons among institutions. Afterdescribing the 1:3sis for assessing institutional strategies, datasources within the institution and procedures to be used in thefinancial self-assessment are examined. Worksheets to be used forrecording data from instituticnal sources are presented. These dataare the bases of the calculations in the workbook. Each worksheetcovers one statistic and includes a discussion of the statistic'ssignificance, median values for similar institutions, explanation ofthe calculation, interpretation and limitations of the statistics,and suggestions for further analysis. Four classes of indicatcrs forfinancial self-assessment, on which the worksheets are based, are asfollows: financial resources, flexibility, nonfinancial resources,and changes affecting financial resources. These four categories arefurther subdivided. Appended materials include calculations for theindicators, a glossary, and information on the steps of developingand testing the workbook. (SW)

************************************************************************ Reproductions supplied by EDRS are the best that can be made *

* from the original document. ************************************************************************

Financial Self-Assessmenta workbook for colleges

Nathan Dickmeyer K. Scott Hughes

-PERMISSIONTO REPRODUCE

THISMATERIAL

IN MICROFICHEONLY

HAS BEENGRANTED

BY

TO THE EDUCATIONALRESOURCESINFORMATION

CENTER (ERIC).

w

U S DEARTNIENT OF HEALTH.

EDUCATION&WELARE

NATIONALINSTITUTE OF

EDUCATION

THIS 00CUMCNTHAS BEEN REPRO-

OuCE0 ExACTLYAl RECEIVED

C ROM

THE PERSON OR ORGANIZATIONOR,C.N

AT,NG IT POINTS OF VIEW OR OPINIONS

ST ATE0 DO NOT NECESSARILYBERRE

SENT OF F .C.N. NATIONALINSTITUTE OT

EDUCATION POSITIONOR ROt ICY

National Association of College and University Business Officers

,3

Library of Congress Catalog Card Number:

80-83834

ISBN 0-915164-11-6

Copyright * 1980 by the National Association ofCollege and University Business OfficersOne Dupont CircleWashington, D.C. 20036

All rights reserved

Printed in the United States of America

Edited and designed by David W. Jacobson

4

Contents

Foreword v

Acknowledgments vii

Introduction ix

I Basis for Assessing Financial Condition 1

2 How to Use the Workbook 5

3 User Data 8

4 Calculation Worksheets 13

Financial Resources 14

Flexibility 22

Nonfinancial Resources 30

Changes Affecting Financial Resources 45

Appendix A Self-Assessment Indicators and Calculations 62

Appendix B Glossary 66

Appendix C Retention of Entering Freshmen 68

Appendix D Development and Testing of the Workbook 72

5

Foreword

This workbook was developed over a period of more than two years.During this period a preliminary edition was prepared and tested. The resultswere carefully reviewed and had a strong influence on the present volume.

There is an increasing interest in and need for financial indicators, espe-cially within the institution but also among persons and agencies outside. It ishoped that this workbook will help to promote greater use of such indicators.Generally, data required for the calculations are readily available, which makesthis workbook particularly easy to use.

In addition to the authors, many persons are responsible for the book;their names are listed in the acknowledgments. Readers are reminded thatbooks published by NACUBO represent the association's position, unlessotherwise indicated, even if authors' names are listed. All books undergo exten-sive review to insure that they are authoritative and that they reflect a consensusof the membership.

D. F. FinnExecutive Vice PresidentNACUBO

G

Acknowledgments

This project would not have been possi-ble without the many contributions of theworkbook task force, which nurtured theworkbook idea and supervised and shapedthe project. The following, who have all beenfinancial consultants to colleges and universi-ties, were members of the task force: Thomas0. James (chairperson), Birmingham South-ern College; James W. Bryant, The RobertR. Moton Institute, Inc.; Douglas J. Collier,National Center for Higher Education Man-agement Systems; William T. Haywood,Skidmore College; James R. Jordan, Ameri-can Council on Education, B.A. Little,Moton Management Improvement Program;Robert W. Meyer, Ohio Wesleyan Univer-sity; W. John Minter, John Minter Asso-ciates; Charles C. Teamer, Dillard Univer-sity; Wayne M. Worm ley, Fisk University;and Marwin 0. Wrolstad, LawrenceUniversity.

Salvatore B. Corral lo, of the U.S.Department of Education, supported theworkbook idea as one that higher educationwould find interesting and useful.

Special thanks go to John Minter, whoprovided valuable comparative data and of-fered significant insights. His energeticinvolvement in the project shortened the timeneeded to complete it. Richard B. Jungkuntz,provost of Pacific Lutheran University, con-

tributed an important technique for eval-uating retention.

The manual serves as a model of inter-association cooperation. Joining in the effortwere the National Association of College andUniversity Business Officers (NACUBO) andthe American Council on Education (ACE).M.J. Williams, staff to NACUBO's Programsfor Small Colleges Committee, and ThomasJames, chairperson of that committee (and ofthe workbook task force, as mentionedabove), continually urged creation of theworkbook, guided the effort, and activelyassisted in workshops that used it. LaurelRadow, of NACUBO, was the project coor-dinator.

In addition to Dr. James, the membersof the Programs for Small Colleges Commit-tee were: Paul J. Aslanian, Macalester Col-lege; John H. Clark, California Institute ofthe Arts; Judith Cooper Guido, Union Theo-logical Seminary; Rudolph E. Koletic, Uni-versity of Tampa; Richard S. Thomas, Ar-kansas College; and Karl J. Warming, BereaCollege. The NACUBO Board of Directorscharged this committee with general oversightof the project.

Particular thanks are extended to thosewho held discussions of drafts of the book.Ernest Bartell, now with Notre Dame Uni-versity and formerly of the Association of

vii

Catholic Colleges and Universities, organizeda meeting for Catholic institutions; Garry J.De Rose, president, did so for Colleges ofMid-America, Inc. Three task forcemembers, Robert Meyer, Wayne Worm ley,and Marwin Wrolstad, held similar discus-sions that allowed personnel from 40 institu-tions to fill out the workbook and review itscontents. The result of these meetings was ashorter, more precise book.

The EXXON Education Foundation,which has consistently supported ideas ofvalue to higher education, provided funds tobring the project to a successful conclusion.Robert L. Payton, Walter J. Kenworthy, andRichard R. Johnson, of the Foundation,helped to advance the project. Their continu-ing interest in management-related problemsis appreciated. The National Center for Edu-cation Statistics funded a preliminary editionof the book.

About the authors: Nathan Dickmeyer isdirector of the Financial Conditions Projectof the American Council on Education. K.Scott Hughes was director of NACUBO'sFinancial Management Center during the firsthalf of the project and senior consultant withPeat, Marwick, Mitchell & Co. during thesecond half.

8

Introduction

This workbook can be used by membersof governing boards, presidents, business of-ficers, and other administrators of collegesand universities. Developed by NACUBOand ACE at a time when many institutionsare facing difficult financial decisions, theworkbook is intended to assist administratorsin understanding and assessing the financialstrengths and weaknesses of their institutions.It should be especially useful to independentcolleges.

Necd for Financial Assessment

Virtually all institutions of higher educa-tion have been affected by the spiraling costsof energy, plant construction, library books,and most services. Also creating pressure arethe current and potential decline in thenumber of students of traditional college-going age, the maturing of buildings andfaculty added during the expansion years,and the increase in regulatory requirements.

The nature and extent of these financialpressures must be examined so that appro-priate strategies and policies can be devel-oped. The analysis in this workbook providesthe basis for determining courses of actionthat can help to assure institutional survivaland health. In most cases, such actions con-

9

sist of allocating scarce resources among thefol:owing:

Working capitalEndowmentNew fund-raising programsFaculty salariesBuilding repairStaff salariesStudent recruitmentNew personnelStudent retentionBuilding constructionStudent scholarships

Allocations are, in effect, investments.An institution's optimal financial strategy,consisting of a carefully selected set of alloca-tions, will offer the best "payoff" at the low-est risk. However, the payoff cannot bemeasured in simple monetary terms as itmight be in the business world. It must bemeasured in terms of the institution's im-proved ability to meet its broad goals.

The ultimate objective of the workbook,as described more thoroughly in chapter 1,"Basis for Assessing Financial Condition," isto help those using it to evaluate the college'sfinancial condition relative to its financialrisks. These financial risks depend on ex-

ix

ternal factors such as demographic changes orthe general economy and on the college'srevenue and expenditure structure. Forexample, a college highly dependent on grantand contract revenues may face relativelyhigh risk, as may an institution with a com-paratively high proportion of fixed costs.

The workbook does not remove the"art" from "the art of administration." Thereis much about institutions that cannot bequantified: leadership, morale, communityspirit, and legend, for example. Also, there islittle about the future that can be foretold.The workbook enables users to calculate anumber of statistics that are necessary for as-sessing institutional risks and resources.These computed statistics are indicators thatform the basis for assembling the institution'sfinancial strategies.

Need for the Workbook Approach

A simplified workbook approach tofinancial assessment has been one of themajor developments of this project. This ap-proach encourages administrators to system-atically examine the financial condition oftheir colleges with a tested and specified setof data-gathering and computational steps.

i 0

x

The workbook approach also explains therelationships among the statistics and howthose relationships can be used to develop afinancial profile.

The workbook contains median valuesthat allow statistical comparisons among insti-tutions. These data, provided by John MinterAssociates, are from Liberal Arts CollegesIL* Business officers may wish to negotiatedirectly with John Minter Associates to ob-tain more specific comparative statistics basedon a particular set of peer institutions such asthose that are denomination-affiliated, thatare located within specific geographic areas,or that have the same enrollment size.

Organization of the Workbook

The workbook has been organized so theuser can read enough material to gain an un-derstanding of the basic concepts of collegefinances without having to perform the statis-tical calculations and analysis. The materialin chapter 1 describes the basis for assessinginstitutional strategies. Chapter 2 describesdata sources within the institution and proce-dures to be used in the financial self-assessment. Chapter 3 consists of worksheetsto be used for recording data from institu-tional sources. These data are the basis of thecalculations in the workbook.

Chapter 4, the bulk of the book, con-tains worksheets for calculating statistics infour key categories that affect the college'sfinancial condition. Each worksheet coversone statistic and includes a discussion of thestatistic's significance, median values forsimilar institutions, explanation of the calcu-lations, interpretations of the statistic, limita-tions of tilt statistic, and suggestions forfurther analysis.

'See Glossary. 1.1

1 Basis for Assessing Financial Condition

The theory underlying the assessment ofa college's financial condition is embedded ina larger view of the operations and strategiesof the college. The analyst must be aware ofthe college's purposes, academic programs,and management philosophy.

Institutional Strategies

In this discussion a strategy is a leng-range plan of action that is intertwined withthe mission, goals, policies, plans, andbudgets of the college. Many strategies are inoperation at any one time, and administratorsneed to understand how current ones con-tribute to the college's successful operation.

Strategies can be grouped into fourbroad areas: academic program, marketing,management and control, and finance. Thelist below illustrates some of the functionswithin each area.

12

-:::?44111

--:v-"'

Statistics in the workbook can be used tomonitor changes in revenue mix, expendituremix, resource mix, and risk position. Amajor consideration in building the college'sfinancial strategy is the balance between risksand resources. As risk increases (for exam-ple, with a drop in applications), resourcesmust increase (for example, from reservefunds) if the institution is to be protectedfrom the full trauma of revenue fluctuations.

Strategies must maximize revenue per-formance without unduly increasing risk.Strategies must also match expenditure pat-terns with overall college goals. The statisticsin the workbook are designed to assist in theevaluation of current strategies and theplanning of new ones.

Financial performance is greatly affectedby the success of strategies in other areas.Thus, financial analysis requires at least apartial assessment of nonfinancial strategiesthat cover, for example, retention, admis-sions, and building maintenance. The work-book ties together the assessment of manytypes of strategies.

13

2

Framework for UnderstandingFinancial Statistics

An institution's financial condition de-pends on two closely related factors: its basicfinancial structure and the environment.Changes in the environment, such as inflationand declining applications, can affect theinstitution's financial stability and structure.Also, changes in financial structure, such asincreased emphasis on academics, can affectthe environment and cause a change in thetype of student who applies.

Coupled with the concept of financialcondition is the concept of financial risk. Theease with which an institution's financial sta-bility is affected by the environment is re-ferred to as its relative financial risk. Themore susceptible an institution is to the nega-tive effets of the environment, the greater isits financial risk.

The assessment of financial conditionand relative financial risk relies on the eval-uation of structured sets of statistics in fourcategories:

174-4

Financial Resources

Accumulated resources are as importantto a college as they are to a profit-making or-ganization. Relative financial wealth gives anorganization the ability to seek opportunities,handle unexpected financial disruptions, andminimize the risk of severe retrenchment.

A financially sound college will haveenough financial resources to meet its imme-diate commitments such as salaries, otheroperating expenses, and debt service. It will

also have a capital base (i.e., endowment andreserves) sufficient to provide a financialcushion as well as offer a stabilizing influenceon the flow of revenues.

The three statistics used to assess thecollege's financial resources are separated bytime phase (short-, intermediate-, and long-term). Two additional statistics in this sectionreflect "Hidden Financial Resources" andhave been included to bring into the analysissuch factors as land sales, potential dona-tions, and wealth of affiliated organizations.These items are not normally documented inthe college's financial statements, yet theycan have a material effect on an assessmentof available financial resources. Appendix Alists all statistics used in the workbook.

In site-visit tests of the workbook, a sta-tistic helpful as a quick summary of overallfinancial condition was the Available FundsRatio, which assesses intermediate-termfinancial resources. It combines the unre-stricted current fund balance and quasi-endowment market value, showing this sumas a proportion of educational and generalexpenditures plus mandatory transfers. Thestatistic reflects the institution's ability tomatch expenditures with revenues over timeand measures the amount of reserves availa-ble for unforeseen financial difficulties ornew opportunities.

FlexibilityMaintaining the flexibility of the institu-

tion is important for minimizing the risks ofrevenue loss or budget misalignment. Thegreater the institution's financial inflexibility,the greater the need for financial resources toprotect and buffer core activities, such as theacademic program, from debilitating fluctua-tions in revenues and costs.

The Debt Service to Revenue Ratio meas-ures the amount of revenue not available forthe buildup of other resources; the Accep-tance Rate measures the flexibility to accept ahigher percentage of the applicant pool; andthe Tenured Faculty Ratio measures the ad-ministration's freedom to make budgetchanges by altering the size of the teachingstaff.

The site visits have shown the Accep-tance Rate to be very significant. If this statis-tic has a high value, the institution's applicantpool is probably limited, and there is a goodpossibility that continued decline in thenumber of students of traditional college agewill have an adverse effect on the college.However, if the statistic has a low value, thecollege probably has some flexibility in its ad-missions program and may experience a rela-tively minor negative effect from such a de-dine.

Nonfinancial Resources

The assessment of nonfinancial resourcescan reveal significant changes that cannot beidentified by standard financial analyses.Some financial strategies sustain what ap-pears to be a financially sound organization.However, this appearance may haye beenachieved through neglect of areas such asacademic programs, student services, physicalfacilities, or faculty.

The nonfinancial resources examined inthis assessment are students, institutional at-traction, academic programs, faculty, staff,and physical plant.

The most informative statistic in thiscategory may be the Instruction Proportion.A decrease in the portion of a college'sbudget allotted to instruction may be causedby factors such as rising administrative sup-port costs, high fixed costs such as debt pay-

-I.

ments and utilities, or growing scholarshipprograms. A decrease in the Instruction Pro-portion may signify a material change in thecollege's priorities for resource allocation.

Chu:4es Affecting Financial Resources

The statistics in this section gauge theinstitution's ability to sustain a balancedstream of revenues and expenditures. Theyalso demonstrate significant revenue and ex-penditure flow changes that may affect finan-cial condition.

The most informative statistics may bethe Student-Derived Revenue Trends and theProportion of Revenue from Gifts.

Overall Assessmentof Financial Condition

The workbook should ultimately lead toa summary of the institution's financial condi-tion. The summary should include answers tothe following questions:

1. What have been the major externalfactors affecting the college's financialcondition?

The search for an answer to this questionmust begin in the "Changes Affecting Finan-cial Resources" section, where enrollmenttrends, the effect of inflation on costs per stu-dent, inflation erosion of tuition revenue, andgift assistance are measured. Enrollment asmeasured by financial full-time equivalentstudents appears to be the single most impor-tant external factor, based on the project'ssite-visit evaluations.

2. What have been the major adminis-trative policies affecting the college'sfinancial condition?

16

These may not be easily recognized.Many of the workbook statistics monitor im-portant, though perhaps unwritten, policiesthat currently guide the institution. Thesepolicies include:

o The allocatfon of resources to re-serves, monitored by the AvailableFunds Ratio.

o The allocation of resources to academ-ic programs, monitored by the Instruc-tion Proportion.

o The allocation of resources to studentrecruitment and retention, monitoredby the Institutional Attraction Statis-tics.

o The allocation of resources to physicalfacilities, monitored by the DeferredMaintenance Ratio.

o The allocation of resources to facultyand staff, monitored by (1) Change inAverage Faculty Compensation and (2)Students to Adminstrative ExemptStaff.

o The effort to minimize risk exposure,as measured by the flexibility ratios(Debt Service to Revenue Ratio, Ac-ceptance Rate, and Tenured FacultyRatio).

o The investment in future effort relativeto current effort, as monitored bytrends in the Endowment Ratio and inthe resource allocations mentionedabove.

o The financing strategy of the institu-tion, as measured by changes in theinstitution's dependence on tuition andgift revenues.

3. How have the institution's financialresources been affected by externalfactors and administrative policies?

3

This question may be answered with anexamination of trends in the statistics in the"Financial Resources" section. Sound finan-cial condition requires liquid assets to pay ex-penses on time, reserves to protect the insti-tution from unfavorable contingencies, andsufficient capital resources to provide boththe symbol and the reality of extra supportfor programs beyond the tuition normallyprovided by students.

4. How has the institution's financialrisk position changed in relation tothe institution's financial resources?

To answer this question, changes in thefinancial reserves of the institution, as meas-ured by the Available Funds Ratio, must becompared to trends in the institution's flexi-bility. If the Debt Service to Revenue Ratio,the Acceptance Rate, or the Tenured FacultyRatio has increased, the institution shouldreexamine its policies for building financialreserves. The greater the inflexibility, thegreater the need for financial resources.

5. What changes have occurred in non-financial resources that may have hadan effect on the institution's financialresources?

Even if the workbook demonstrates inanswer to question 4 that the institution hassuccessfully built up financial resources, thatincrease may have occurred at the expense ofnonfinancial resources. A comparison oftrends in the "Financial Resources" and"Nonfinancial Resources" sections will helpto answer this question of balance among in-stitutional resources. Financial reserves maygrow at a time when faculty salaries, build-ing maintenance, or institutional attractionshrinks.

17

4

6. What is the institute n's overall finan-cial condition?

At this point science stops, and the artof assessment begins. After completing theworkbook, the analyst may see many possiblecourses of action, some running counter toconventional wisdom about the prosperity ofthe institution. The art of assessment involvesblending these perceptions and potentialcourses of action into a coherent picture ofthe college's condition. Discussion of pastand future financial strategies should flowfrom the assessment, as should judgmentsabout which aspects of the assessment aremost important to each institution and whatmay be missing from the analysis.

The workbook's Core Statistics shouldbe examined first. These are "special alert"statistics that can highlight the most dam-aging or encouraging financial trends in theinstitution.

The Core Statistics are:

,r

-

.1 ,rk

An institution's decisions on the relativeimportance of various statistics should bebased on that institution's mission and specialsituation. For example, institutions withstrong community or religious support mayfind that financial resource measures or fac-tors are not as critical as other types of re-source measures. The pattern of strengthsand weaknesses that differentiates the institu-tion from its peers is crucial to determiningthe relative importance of assessment factors.

Further analysis or special sensitivitymay be needed to complete the broad assess-ment. Although a statistic may show fallingrelative faculty salaries, for example, the de-cline may be caused by recruitment of youngfaculty and retirements. Discovery of subtleor concealed factors behind the trends isnecessary for determining the real meaningof many of the statistics.

As the potential for enrollment declineforces new priorities on many institutions,the need for financial reserves, strong reten-tion, competitive academic programs, andwell-maintained physical facilities is increas-ing. For most institutions the statistics thatmonitor these factors will provide the corefor an overall assessment. Other institutionsin other circumstances may focus on differ-ent statistics measuring different factors.

2 How to Use the Workbook

The workbook has been designed 30that financial officers, in cooperation withthe registrar and admissions officers, will bebest equipped to fill it out. Specializedlanguage has been eliminated as much aspossible.

Identification of Institutional Data

The workbook allows a logical presenta-tion of many types of data. The "UserData" worksheet in chapter 3 lists all institu-tional data categories needed for the assess-ment and has spaces for recording informa-tion for each of seven years (1976-1982).

The key institutional data sources are:

In addition to the above, a number of sup-plemental reports or estimates are necessary.To complete the workbook, for example, theamount of deferred plant maintenance at theend of each fiscal year will have to be esti-mated.

Data for five consecutive fiscal years,FY76 through FY80, will be needed to cal-culate the statistics. Because self-assessmentemphasizes trend analysis, those using theworkbook should be certain that informationfor each item on the User Data worksheet inchapter 3 is as consistent from year to yearas possible. This insures that users will seeaccuraie trends. Information from the work-sheet is transferred as needed to the Calcula-tion Worksheets in chapter 4.

Dates on all worksheets run to 1982 toallow annual updating of the workbook. Noprojections are to be made, except wherespecifically indicated.

A comprehensive glossary is provided inappendix B. It is intended to encourage theuse of consistent terminology and classifica-tion structures and is based on materialsdeveloped by the following national organi-zations:

American Association of CollegiateRegistrars and Admissions OfficersNational Association of College andUniversity Business OfficersNational Center for Higher EducationManagement Systems

5

6

Filling Out the Workbook

In order to facilitate completion of theworkbook, the following steps are suggested:

Yk

,

I*1.4.V3Fe

The workbook can and should bemolded to fit the needs of each institution.After using the workbook for the first time,administrators can add their own statisticsfor calculation or make other adjustments.

Preparation of Reports

College officials may wish to prepare an-nual financial assessments. These reports areuseful at the start of each academic year andmay be presented to the governing board inthe fall, as well as to faculty, students, andother interested parties. The assessments willprovide important background material asofficials begin constructing the subsequentyear's operating budget.

The following outline illustrates how thestatistics in the workbook can form the basisof reports on financial condition. Such re-ports should include only those topics andstatistics that are relevant to the institution'ssituation and that may help administrators toformulate courses of action.

Some of the material in the outline isexplained in Financial Responsibilities ofGoverning Boards of Colleges and Universi-ties, a NACUBO/AGB* book. A PlanningManual for Colleges and A ManagementReporting Manual for Colleges, published byNACUBO, also describe the use of financialinformation in the development of collegeplans and are sources of additional informa-tion.

'Association of Governing Boards of Universities andColleges

Outline of Sample Report

Introduction

Purpose of the reporto Assessment of financial conditiono Background material for review of

administrative policies and for prepara-tion of budget

Scope of reporto Five-year historical analysiso Financial assessmento Use of comparative statistical dataAudienceo President and executive staffo Faculty and student governing bodieso Governing boardApproach to the analysiso Use of the workbooko Description of relative financial risk and

financial flexibility

Summary of ObservationsRelative financial risk conditiono Identification of major financial

strengths and weaknesses

Relative flexibilityo Identification of options available

prove financial position

External Factors Affecting FinancialCondition

o Enrollment trends (pp. 28-29)o Inflation (pp. 38-39, 57-58)o Local economic conditionso National student test scores (pP. 30-33)

o Student aido Academic program offeringso Student-faculty ratios (pp. 38-39)

Financial Resourceso Unrestricted current fund position

(pp. 14-15)o Available fund position (pp. 16-17)o Endowment position (pp. 18-19)o Hidden financial resources (pp. 20-21)

Flexibilityo Debt service burden (pp. 22-23)o Acceptance rate (pp. 24-25)o Tenure ratio (pp. 26-27)o Hidden financial risks (pp. 28-29)

Nonfinancial Resourceso Students (pp. 30-33)o Institutional attraction (pp. 34-35)o Academic program (pp. 36-37)o Faculty (pp. 38-39)o Staff (pp. 40-41)o Physical plant (pp. 42-43)o Hidden nonfinancial resources (p. 44)

Revenues and Expenditureso Revenues by source (pp. 50-52)

to im- O Expenditures by object and function(pp. 59-61)

Causal Relationshipso Changes in external factofs compared to

changes in flexibility, financial resources,and financial inflow's and outflows

o Flexibility compared to financialresources

o Changes in nonfinancial resources com-pared to changes in financial resources

o Changes in administrative policies com-pared to changes in financial resources

Recommendations for StrategiesO Continuationso New strategies

Administrative Policies AffectingFinancial Condition

o Resource allocations (pp. 57-58)o Salary levels (pp. 38-39)o Tenure (pp. 26-27)o Use of part-time facultyo Admissions (pp. 24-25, 30-33)

22

7

Charts and Graphso Enrollment trendso Student faculty ratioo Retentiono Salary trends compared to inflationo Ratio of matriculations to applicationso Ratio of instruction to operating budgetso Ratio of expenditures to revenues

23

8

3 User Data

2,1

.r

I

9

Revenues (from statement of revenues andexpenditures)

1976 1977

Fiscal Year Ending:

1978 1979 1980 1981 1982

1. Tuition and fees ($000) $ $ S $ $ S S

2. Government appropriations (federal, state,and local) ($000) S $ S $ $ $ S

3. Government grants and contracts (federal,state, and local, including scholarship aid,SEOGs, work-study revenues, researchfunds, education "title" funds, etc.) ($000) $ S $ $ S $ S

4. Private gifts, grants, and contracts (includeunrestricted and restricted) ($000) S S $ S S $ S

5. Endowment income (include unrestrictedand restricted) (S000) $ $ S $ $ S S

6. Other current fund revenues ($000) S S $ $ S $ S

7. Auxiliary enterprise revenue (S000) $ $ $ $ $ S S

8. Revenue from independent opera-tions ($000) $ S S S S S S

9. Current fund revenues (include un-restricted and restricted)(add items 1 through 8) ($000) S $ S $ S S S

10. Value of contributed services (even ifincluded above) ($000) $ $ S $ $ S $

11. Financial support from affiliated organi-zations or patron foundations (even ifincluded above) ($000) $ S S $ S S S

'12. Tuition and fee rate per year for afull-time student ($000) $ S $ $ S S S

Data needed for Core Statistics.

2 ,) 21;

10

Expenditures and Transfers (from statementof revenues and expenditures)

1976 1977

Fiscal Year Ending:

1978 1979 1980 1981

'13. Instruction ($000) S $ $ $ $ $ $

14. Research ($000) S S $ $ $ $ $

15. Public service ($000) S $ $ S $ $ $

16. Academic support ($000) S $ $ $ $ $ $

17. Student services ($000) S S S $ $ $ $

18. Institutional support ($000) S $ $ S $ $ $

19. Operation and maintenance of($000) S S $ $ $ $ $plant

'20. Scholarships and fellowships fromunrestricted funds ($000) $ S $ $ $ $ $

'21. Scholarships and fellowships fromrestricted funds ($000) $ $ $ $ $ $ $

'22. Mandatory transfers ($000) $ $ $ $ $ $ $

'23. Educational & general expendituresplus mandatory transfers ($000) (E&G +MT) (add items 13 through 22) $ $ $ $ $ $ $

24. Utilities included in operation and main-tenance of plant (electricity, gas, coal,steam, water, etc.) (see item 19) ($000) $ $ $ $ $ $ $

'25. Average full-time faculty compensation(salary and benefits) ($000) $ $ $ $ $ S $

26. Average exempt staff salaries (adminis-trative and institutional services) ($000) $ $ $ $ $ $ $

27. Debt service due for all funds (withinthe fiscal listed) ($000) $ $ $ $ $ $ $year

28. Total books and periodicals expendi-tures ($000) $ $ $ $ $ $ $


1982

Fiscal Year Ending:

Balance Sheet Items 1976 1977 1978 1979 1980 1981 1982

29. Unrestricted current fund assets ($000)30. Student accounts receivable at end of

fiscal year (not including creditbalances or advance billings) ($000)

31. Uncollectible student accounts writtenoff in fiscal year ($000)

32. Unrestricted current fund liabilities ($000)

*33. Unrestricted current fund balance (shouldequal item 29 minus item 32) ($000)

*34. Quasi-endowment market value ($000)35. Endowment (including quasi) market

value ($000)

36. Value of marketable land (not in-cluded in endowment) ($000)

Deferred Maintenance37. Estimate of deferred physical plant main-

tenance ($000)

Personnel38. Number of tenured faculty or faculty with

long-term contracts (greater thanfive years)

*39. FTE (full-time equivalent) faculty (fall)40. FTE administrative exempt staff

(excluding auxiliary staff) (fall)

'Data needed for Core Statistics.

23

S S S S S S

S S S S S S

S S S S S S

S S S S S S

$ S S S S $

S S S S S S

S S S S S $

S S S S S S

S $ S $ S S

S

S

S

S

$

$

S

S

S

11

3 0

12

Students (from admissions reports)(Note: Items 41-49 require information from

Fiscal Year Ending:

academic year, not fiscal year.) 1976 1977 1978 1979 1980 1981 1982

41. Inquiries (bona fide, not frompurchased lists)

*42. Freshmen applications*43. Transfer applications*44. Acceptances of freshmen and

transfer applicants45. New students (freshmen and transfers)

%

%

%77

46. Percentage of previous year's eligiblestudents who enroll for next class % % % % % %

47. Average test scores of entering freshmen48. Percentage of entering students from

top 20% of high school class % % % % % %

49. Percentage of entering students fromtop 40% high school class % % % % % %of

*50. FTE students (fall)51. Total student headcount (fall)

Financial Aid (from financial aid office reports)

52. Amount of BEOGs not included in

41

it

items 20 through 22 ($000) S S S S S S S

53. State student aid not included initems 20 through 22 ($000) S S S S $ S S

54. Federal work-study not included in items20 through 22 (S000) S $ S S S S S

55. Other government student aid notincluded in items 20 through 22 ($000) S S S S S S S

56. All government student aid notincluded in revenues (items 20 through22) (add items 52 through 55) ($000) S S S S S S S

Projected Data57. Potential first-time student enrollment 1981 1982 1983 1984 1985

decline (% decline from base year 1980because of changing demographics) % % % % %


331

4 Calculation Worksheets

Indicators for Financial Self-Assessment

Financial Resources

o Short-termUnrestricted CurrentFund Ratio

o Intermediate-termAvailable FundsRatio*

o Long-termEndowment Ratio

Flexibility

o Debt Service to Revenue Ratioo Acceptance Rate'

o Tenured Faculty Ratio

33

Nonfinancial Resources

o Student Characteristics

o Institutional Attraction

o Academic Program*

o Faculty'o Staff

o Deferred Physical Plant Maintenance

13

Changes Affecting Financial Resources

o Student-Derived Revenue Trends*

o Government-Derived Inflow Proportion

o Revenue Bar Graphs

o Contributed Services

o Expenditures per Student

o ExpendituresUnit Trendso Expenditure Bar Graphs

' Core Statistic

14

Financial Resources: Indicators and Calculations

A. Short - term -- Unrestricted Current Fund Ratio

Calculation: Unrestricted current fund assetsUnrestricted current fund liabilities

B. Intermediate-termAvailable Funds RatioCalculation: Unrestricted current fund balance

plus quasi-endowment market valueEducational and general expenditures

plus mandatory transfers (E&G + MT)

C. Long-term--Endowment RatioCalculation: Endowment market value

E&G + MT

Hidden Financial Resources (estimated only):D. Value of Marketable Land Ratio

Calculation: Value of marketable landE&G + MT

E. Financial Support from Affiliated Organizations or Patron FoundationsCalculation: Financial support from affiliated organizations

or patron foundationsE&G + MT

'Core Statistic

Significance of StatisticThis statistic is a ratio of unrestricted

current fund assets to unrestricted currentfund liabilities. The value of the ratio is anindication of funds available to pay currentlyowed liabilities. Current fund assets areusually regarded as the most liquid of theinstitution's financial resources and are usedto pay current operating expenses. One ofthe main reasons for keeping this ratio safelyabove one and preferably above two is toprovide adequate working capital. Bills canbe paid on time, less time is spent borrowingfunds, discounts can be taken, and intereston debt is minimized. These are signs of awell-run, financially healthy organization withminimal cash-flow problems.

Cakulation Worksheet Fiscal year ending:

A. Unrestricted current fund assets (29.) S

B. Unrestricted current fund liabilities (32') $

C. Unrestricted Current Fund Ratio(A divided by B):

15

1976 1977 1978 1979 1980 1981 1982

S s s s s sS s $ s s s

'Refers to corresponding item on worksheet in chapter 3, "User Data."

Median Values for Similar Institutions

1976 1977

FTE --.5 1500, from',iberal Arts Colleges II

1978 1979 1980 1981 1982

Unrestricted Current Fund Ratio(17 institutions) 1.167 .969 .870 1.193

Source: Audited financial statements coded to NACUBO standards, John Minter Associates, Boulder, Colorado.

Explanation of CalculationsCurrent fund assets include cash, securi-

ties, accounts receivable, prepaid expenses,and inventories. Current fund assets may alsoinclude amounts loaned to other funds ("duefrom"). Current fund liabilities include ac-crued rtyroll, accounts payable, accruedrevenue, notes payable, and money borrowedfrom other funds ("due to").

The ratio uses only unrestricted currentfund assets and liabilities. While this may beconservative in that many assets of the re-stricted funds (such as gifts restricted to "aca-demic programs") may be only loosely re-stricted, many restricted assets such as thecash from advance receipts of student finan-cial aid can be used only for very specificpurposes and cannot be used to pay unrz-stricted liabilities. Thus, restricted funds areexcluded from this liquidity calculation.

InterpretationsRatios above two. The institution !nob-

ably has adequate unrestricted current fund

37

assets to prevent immediate or short-termfinancial difficulty.

Ratios between one and two. The institu-tion may wish to reevaluate its cash manage-ment policies. If most of the assets such ascash or marketable securities are liquid, andif many of the liabilities are not due imme-diately (for example, amounts due to otherfunds), then a lower ratio is probably accept-able. If no margin of safety is revealed in thecash management analysis, then business of-ficers may need to increase assets and retireliabilities by budgeting surpluses throughgreater austerity. They may also wish to man-age cash with a monthly cash-flow plan.

Ratios below one. Cash-flow difficulty ismore probable. Unless the institution hasother sizable reserves, difficulty with credi-tors is possible. The institution may have in-sufficient assets to cover debts, especially if itis borrowing heavily on a short-term basis.Careful and alert cash management may benecessary when cash reserves are almost de-pleted.

LimitationsLiquid assets may be available in other

funds. Notably, the plant fund may have as-sets that are not committed to any currentproject. These assets may be available in anemergency and, at the discretion of the gov-erning board, can be redirected to the cur-rent fund.

Further AnalysisIf weakness is indicated in the institu-

tion's working capital position, the followinganalyses may be warranted.

The institution may wish to establish acash-flow forecast, based on previous years'records, showing monthly revenues and ex-penditures for at least one year. Months withtraditionally low balances can be highlighted.These months might then be targeted forearly tuition payment drives or special fund-raising programs.

If the institution can use restricted assetssuch as reserves for payment of current funddebt, then the ratio should be calculated withthese assets included.

An examination of restricted currentfund liabilities occasionally reveals amountssuch as refunds due that are owed to externalagencies (for example, NDSL). To highlightpotential cash-flow problems, it may benecessary to include in the calculation anyliabilities of this nature and any restrictedfund assets available to cover them.

38

16

lor

Significance of StatisticThe unrestricted current fund balance

and quasi-endowment represent the financialreserves of the institution. Unlike pure en-

Calculation Worksheet

dowment, quasi-endowment funds can beused if the governing board is given adequatetime to consider transferring them. Thesequasi-endowment reserves can help to dimin-ish the adverse effect on current programscaused by revenue declines and unforeseenexpenditure increases. They can also be usedas venture capital for innovative educationalideas. Institutions that have not run consis-tent deficits are in generally good financialcondition and have been able to sustain theirfinancial reserves.

Fiscal year ending: 1976 1977 1978 1979 1980 1981

A. Unrestricted current fund balance (33') S S S S S S S

B. Quasi-endowment market value (34') S S S S S S S

C. Available funds (add A and B) S S S S S S S

D. E&G + MT (23') S S S S S S S

E. Available Funds Ratio (C divided by D):

'Refers to corresponding item on worksheet in chapter 3, "User


Data."

FIE --. 1500, from

1976 1977

Liberal Arts Colleges II

1978 1979 1980 1981 1982

Available Funds Ratio(using book value)(17 institutions) .130 .157 .138 .080


1982

Explanation of CalculationsThe fund balance for any fund is the dif-

ference between assets and liabilities. Thefund balance is positive when assets arelarger than liabilities and negative when lia-bilities exceed assets. In a year whenrevenues exceed expenditures, assets may in-crease accordingly, liabilities may decrease,or both may occur. In a year when expendi-tures exceed revenues, the extra costs of thatyear's operations must be funded by drawingon assets, if available, or by borrowing (i.e.,increasing liabilities). In either case the defi-cit causes the fund balance to decline.

Because of their close relation, the unre-stricted current fund balance and the quasi-endowment have been chosen here to com-prise "available funds." Increases in quasi-endowment generally consist of transfersfrom the current fund. These transfers aremade with the approval of the governingboard and may result from an unusually largeunrestricted gift or a current fund surplus. Aspreviously stated, quasi-endowment fundsmay be withdrawn by board action.

Dividing the available funds by a year'seducational and general expenditures plusmandatory transfers (E&G + MT) measuresthe size of the college's financial reserves.For example, a ratio of one-half would meanthat the institution has sufficient financial re-serves to continue operations for six monthswithout revenue inflow.

If there are current fund balances thathave been specifically designated as reserves,they should be included with the unrestrictedcurrent fund balance. Some institutions setaside portions of surpluses as operating re-serves.

41

InterpretationsComparison with peer institutions. The

medians in the "Median Values for SimilarInstitutions" section above seem too low forsafety, given the probability of enrollment de-cline, the increased tenuring of faculty, andthe rising costs of energy. Determination ofwhat constitutes "adequate" net availablefunds in reserve should be based on theanalysis in the "Flexibility" section of thisworkbook. The internal flexibility assessmentis a more accurate indicator of reserves thancomparative assessment.

Declining ratios. A decline may be inter-preted as a positive trend if the institutionhas chosen to invest its reserves in a new pro-gram or to fortify an existing one. In mostcases, however, a decline in available fundsmeans the institution is finding it increasinglydifficult to balance revenues and expendi-tures. The college is probably incurring defi-cits, and its reserves are being diminished.On the other hand, if the institution has ex-perienced enrollment growth, a decline in theratio may indicate that reserves are failing togrow as fast as the institution's budget.

Increasing ratios. Institutions with an in-creasing ratio are better prepared for finan-cial disruptions. Further analysis, however, isneeded to confirm that other resources, in-cluding buildings, faculty, or students, are notbeing neglected. Analysis of these factors fol-lows in the "Nonfinancial Resources" sec-tion.

LimitationsSome institutions may have hidden finan-

cial resources such as land or financiallysound affiliated organizations that make the

17

negative interpretation of low fund balancesincorrect.

Also, some institutions may have re-serves in other funds such as the plant fundthat may offset low fund balances in the cur-rent and quasi-endowment funds. Because ofthe many possible restrictions on them, how-ever, accumulate d plant funds have not beenincluded in the calculation of available funds.

Further AnalysisShould the ratio above demonstrate a

decline in or a lack of reserves, and shouldno hidden resources mitigate this decline, anexamination of the institution's marketing,control, and financial strategies is needed.

42

18

Significance of StatisticThis ratio compares the institution's en-

dowment fund, including quasi-endowment,at market to the amount of yearly expendi-tures (E&G + MT). The endowment fundrepresents accumulated resources that pro-vide income for extra service to studentsabove what is "purchased" with tuition. En-dowment income is an intrinsic part of thefinancial strategy of many independent col-leges and is important for marketing strategyas well. The endowment is also valuable as asymbol representing faith in the continuedexistence of the institution.

Calculation WorksheetFiscal year ending: 1976 1977 1978 1979 1980 1981

A. Endowment (including quasi)market value (35') $ S S S S S S

B. E&G + MT (23`) $ $ S S S S $

C. Endowment Ratio (A divided by B):

*Refers to corresponding item on worksheet in chapter 3, "User Data."

Median Values for Similar Institutions FTE --s. 1500, fromLiberal Arts Colleges II

1976 1977 1978 1979 1980 1981 1982

Endowment Ratio(17 institutions) .551 .602 .594 .613


434,1

1982

Explanation of CalculationsEndowment funds can be invested in a

broad range of items including cash, stocks,bonds, treasury bills, land, farms, oil wells,and commercial properties. Because of thevariety of investment possibilities, it is diffi-cult to find a measure that evaluates thepotential effect of the endowment fund onthe institution, though current market valueclosely approximates the economic value ofthe fund. By dividing the market value of theendowment by the amount of the unrestrictedand restricted expenditures, the endowmentcan be compared with annual expenditures.

InterpretationsEndowment ratios compared to the na-

tional median for peer institutions. Institutionsbelow the median may be at a competitivedisadvantage, unless other resources or reve-nue flows (gifts or contributed services) pro-vide comparable amounts of revenue. Lowendowments generally mean the institution'spriorities for current revenues and gifts havebeen concentrated on immediate support ofbudget operations. Until current operationsare stabilized and intermediate reserves areaccumulated, endowment-building shouldprobably have low priority.

Declining ratios. Either or both of twoproblems may be in evidence. First, the insti-tution's expenditures may be growing fasterthan the endowment. The ratio will thus de-cline, showing that the ability of the endow-ment to provide support to the budget is notkeeping up with inflation. Second, the valueof the endowment may be eroding because ofunsuccessful investment policies, transfers outof quasi-endowment, or high payout rates.

Increasing ratios. Apparently the institu-tion has had success in increasing the endow-

45

ment through gifts or sound investment. Theendowment has been growing at a faster ratethan current fund expenditures.

LimitationsThis ratio measures only superficially the

overall health of the institution. Having anendowment does little to forestall financialdifficulties, although some institutions havepledged endowment investments againstloans.

There are many other factors to considerwhen assessing the long-range financial healthof an institution. For example, the endow-ments of colleges affiliated with a religionmay be supplemented by contributed ser-vices. A steady flow of expendable gifts fromthe religious order may have the same long-term financial effect as an endowment.

Because of fluctuating interest rates, theyield on endowment varies from year to yearfor many institutions.

Further AnalysisA declining ratio warrants a more

thorough investigation. Payout rate, invest-ment policies, and fund-raising programsshould be reviewed. The following definitionswill be useful in that analysis

Rate of return: Return on investment asa percentage of market value at begin-ning of year, including appreciation anddepreciation.Payout rate: Earnings used as a percent-age of market value at beginning of year.Gifts rate: Gifts to endowment as a per-centage of market value at beginning ofyear.Growth rate of expenditures: Percentageincrease in E&G + MT.

19

The analysis of these items involves thefollowing calculation: Rate of return + giftrate payout rate=growth in endowmentmarket value. For the Endowment Ratio toremain steady, the growth of endowmentmarket value must equal the growth of E&G+ MT. This breakdown of endowmentgrowth factors allows a year-by-year look atendowment policy and reveals damagingtrends in gifts, payout, and return.

Some institutions may wish to set up a15-year history of the ratio. The decliningrole of endowments in financial strategies canbe vividly displayed by such a review.

46

20

Significance of Statistic

Many institutions have financial re-sources that are not evident in the three pre-vious sets of calculations. Institutions in ur-ban areas may own valuable and perhaps un-needed land that should be considered a re-source. Other institutions may be affiliated

Calculation WorksheetFiscal year ending:

A. E&G + MT (23')B. Value of marketable land (not included

in endowment) (361C. Hidden Resources Ratio (B divided by A):

D. Financial support from affiliated organi-zations or patron foundations (11')

E. Hidden Resources Ratio (D divided by A):

with financially sound organizations thatwould support them in a financial emergency,and others may have wealthy benefactorswho provide continuing or growing support.To complement the analysis of financial re-sources, hidden resources should be com-pared with the size of the budget (E&G +MT). In general, the historical perspective isunnecessary, except where substantialchanges have occurred (for example, the saleof a large piece of property). The hidden re-sources listed below (items B and D) are il-lustrative; administrators should add othersthat are appropriate.

1976 1977 1978 1979 1980 1981 1982

$ $ $ $ S $ $

$ $ $ $ $ $ $

*Refers to corresponding item on worksheet in chapter 3, "User Data."

Median Values for Similar Institutions: Not available.

4'1 46

Explanation of CalculationsAfter comparing these hidden resources

with the institution's budget (E&G + MT),administrators may have a more complete un-derstanding of the institution's total financialresources.

LimitationsProceeds from the sale of large items

such as land often can be added only to theendowment fund. The favorable effect on theinstitution may not be immediate since sup-port comes solely from earnings. Becausehidden resources have only long-term effect,ratios derived from those resources should becompared with the Endowment Ratio.

Further AnalysisOther hidden resources may be assessed

by an actuarial valuation of known bequestsand annuities, for example.

49

22

Flexibility: Indicators and Calculations

A. Debt Service to Revenue RatioCalculation: Debt service due

Current fund revenuesB. Acceptance Rate*

Calculation: Acceptances of freshman and transfer applicants

Freshman and transfer applications

orAcceptances of freshman and transfer applicants

Inquiries

C. Tenured Faculty RatioCalculation: Number of tenured faculty

or faculty with long-term contracts(greater than five years)

FTE faculty (fall)'Core Statistic

Significance of StatisticThis ratio measures the flexibility of the

institution to commit revenues to resourcesrather than to debt service. The higher theburden of debt service, the more difficultythe institution will have in finding sufficientrevenue to allocate to other financial andnonfinancial needs. The failure to meet debtservice is an admission of severe financialdifficulty.

4

Calculation WorksheetFiscal year ending: 1976 1977 1978 1979 1980 1981 1982

A. Debt service due for all funds (withinthe fiscal year listed) (27') $ S $ S $ S S

B. Current fund revenues (restricted andunrestricted) (9.) $ S $ $ $ $ $

C. Debt Service to Revenue Ratio(A divided by B):

'Refers to corresponding item on worksheet in chapter 3. "User Data."

Median Values for Similar Institutions FTE --5 1500, fromLiberal Arts Colleges II

1976 1977 1978 1979 1980 1981 1982

Debt Service to Revenue Ratio(28 institutions) .012 .008 .005 .005

Source: Audited financial statements coded to NACUBO standards. John Minter Associates. Boulder. Colorado.

Explanation of CalculationsDebt service for all funds is included

to provide a complete picture of commit-ments to lenders. Debt service includes prin-cipal and interest payments as well as sinkingfund obligations. Even if a moratorium hasallowed the suspension of -lebt repayment,the amount normally due for the year shouldbe shown in order to establish a true trend.

Restricted current fund revenues areadded to unrestricted current fund revenuesso that a comparison of total revenue inflowto debt service commitments is possible.

InterpretationsIncreasing ratios. Budgeting flexibility

decreases as debt service commitments in-crease. More institutional resources must gotoward debt repayment.

52

Decreasing ratios. Flexibility increases asdebt service commitments decline. The insti-tution may commit these funds to other pur-poses.

LimitationsNo national standards for budget per-

centage ded;cated to debt service may be in-ferred from the median values. The willing-ness and ability to commit revenues to debtservice vary greatly among institutions.

Further AnalysisAny trend in debt service burden is re-

vealed by analyzing the following:Unsecured debt repaymentSecured debt repayment

If growth is occurring in the unsecuredcomponent, the institution may be greatly in-creasing the risk of future financial difficulty.

24

Significance of StatisticThis is the ratio of first-time student ac-

ceptances (freshmen and transfers) to thetotal number of applications. As this ratio in-creases and the institution accepts a greater


percentage of applicants, the probability isgreater that the college will be affected byfluctuations in student markets. Institutionsthat accept a high percentage of their appli-cants have less flexibility to increase enroll-ments should the number of applicants fall.(Projected U.S. population trends indicatedeclining numbers of 18- to 21-year-olds.)

Though accepting students who are lessprepared creates obvious problems for-insti-tutions, it is important to emphasize that theAcceptance Rate is used as a measure of flexi-bility, not of institutional quality.

Academic year ending: 1976 1977 1978

A. Acceptances of freshmen andtransfer applicants (44°)

B. Freshmen and transfer applications(or) (42*/43')

Inquiries (see Explanation, p. 25) (41')

C. Acceptance Rate (A divided by B):



1979 1980 1981 1982

Explanation of CalculationsAcceptances should include freshmen

and transfers. Applications in the denomina-tor should be for the same freshmen ortransfer places counted in the numerator. Inother words, applications should be from theprevious year.

If there is substantial preapplicationcounseling, inquiries should be used in thedenominator since the institution is probablyguaranteeing admission after the counseling.In those cases, the number of inquiries is theclosest approximation of available and in-terested students. Purchased "lists" of stu-dents should not be included in inquiries.

InterpretationsHigh ratios. Acceptance Rates approach-

ing 100 percent indicate little flexibility in thecollege's admissions practices. In such casesthere is little possibility of maintaining enroll-ments by "lowering standards." Other formsof contingency protection such as largerfinancial reserves may be needed.

LimitationsA crucial factor missing from the inter-

pretation of the Acceptance Rate is the prob-ability that the actual number of applicationswill decline. Only part of the ability of theinstitution to respond to a decline is meas-ured above. Gauging the adequacy of finan-cial reserves hinges for most institutions onan estimate of (1) the maximum decline inenrollments, (2) the net effect on revenue ofthe projected decline, and (3) the number ofyears of lag-time needed to adjust expensesto the reduced enrollment level. Reserves canbe used for a short period to ease the finan-cial problems caused by decreasing enroll-ments.

The trend of students applying to moreschools may show up as a false decrease inrisk. The potential yield to each institutiondeclines as students choose to send out moreapplications. Few data showing changes instudent application behavior are available, al-though groups of institutions can and doshare Acceptance and Yield Rates to assisteach other in measuring student applicationchanges.

Further AnalysisThe following definitions are also helpful

in amplifying any trends that are discovered:

Rejection rates. The proportion of appli-cants actually rejected by the college. Thismay not complement the Acceptance Rate ifincomplete applications have been counted asapplications.

Yield rates. The proportion of acceptedstudents who choose to attend.

Market share. The ratio of the college'sfirst-time enrollments to the first-time enroll-ments of the top 10 competitors.

Projected applications. High school grad-uations projected by geographic region.

26

Significance of StatisticThe relative inflexibility of the budget

intensifies the need for financial resources,especially endowment. Budget inflexibilitymay occur when expenditures such as long-term salary contracts take an increased share


Fiscal year ending:

A. Number of tenured faculty or facultywith long-term contracts (greaterthan five years) (38')

B. FTE faculty (fall) (39')C. Tenured Faculty Ratio

(A divided by B):

of the budget. These expenditures limit theinstitutional manager's ability to change long-term budget composition. The statistic thatmost easily monitors institutional flexibilitywith regard to faculty is the Tenured FacultyRatio. Normally, an institution must declareand prove financial exigency to releasetenured faculty. Institutions with increasingproportions of tenured faculty may be able tooffset this increased inflexibility with highlevels of relatively stable revenues such as en-dowment income or annual fund giving.

1976 1977 1978



1976 1977

1979

FTE 1500, fromLiberal Arts Colleges II

1978 1979 1980 1981 1982

Tenured Faculty Ratio(20 institutions) .430 .432 .450 .375


5'1

1980 1981. 1982

Explanation of CalculationsWhile most tenured faculty are full-time,

total faculty full-time equivalents will includepart-time faculty. The use of FTE faculty inthe denominator is necessary because theratio monitors changes in the proporticn ofall faculty holding tenure.

InterpretationsTenured Faculty Ratios indicate changes

in the flexibility to make budget reductions.

LimitationsMany other commitments serve to de-

crease budget flexibility, including debtservice, insurance, salaries of key administra-tors, employee benefits, and utilities expendi-tures.

Further AnalysisIf the analyst is greatly concerned about

trends in budget flexibility, a more detailedanalysis is possible. First, the budget shouldbe divided according to degree of commit-ment into major expenditure categories.Then the analyst should rank the categoriesaccording to the degree of flexibility for thenext five years. The ranking might begin withtenured faculty salaries and benefits, debtservice, utilities, other faculty salaries, topadministrative salaries, commitments for ser-vices (insurance, etc.), other salaries, andother expenditures. This breakdown might bedisplayed on bar graphs showing changes inthe budget proportion dedicated to the var-ious expenditure categoriec.

5 9

28

Significance of StatisticGenerally, the occurrence of these

hidden financial risks varies greatly amonginstitutions. Risks covered on the following


worksheet include projected enrollment de-clines, increases in uncollectible student ac-counts, and student receivables.

The larger such contingencies loom onthe institution's horizon, the more necessaryit becomes to build financial reserves. Ex-ternal forces such as enrollment declines orfunding interruptions can have an importanteffect on financial strategies.

Fiscal year ending: 1981 1982 1983

Effect of Potential Enrollment DeclineA. Potential first-time student enrollment

decline (% decline from base year 1980because of changing demographics) (57') % %

B. Effect on overall enrollment (% declinefrom base year 1980 because of changingdemographics) % %

C. Effect in terms of current tuition dollars(or total dollars lost) (multiply 13by item 1*): S S S


Median Values for Similar Institutions: Not Available

Fiscal year ending: 1976Effect of UncollectiblesD. Uncollectible student accounts written off

in fiscal year. (31') S S

(23') S SE. E&G + MTF. Uncollectibles to E&G + MT

(D divided by E):

'Refers to corresponding item on worksheet in chapter 3, "User Data


1977

S

S

1984 1985

% % %

% % ____ %

S S-

1978 1979 1980 1981

S S $

S S S

6 i

$

$

1982

Fiscal year ending:Student Receivables RatioG. Student accounts receivable at end of

fiscal year (not including creditbalances or advance billings)

H. Tuition and feesI. Auxiliary enterprise revenue

J. Total student billings (approx.)(add H and I)

K. Student Receivables to Billings Ratio(G divided by J):

1976 1977 1978

(30") $ $ $ $

(1) $ $ $ $

(7*) $ $ $ $


Median Values for Similar Institutions1976

Student Receivables to Billings Ratio

Private four-year colleges1977 1978 1979 1980 1981 1982

.034 .039Source: Higher Education Panel Report 49, American Council on Education, 1981.

Explanation of CalculationsState-by-state demographic data showing

declines in the 18- to 25-year-old populationthrough 1990 are available from the PolicyAnalysis Service of the American Council onEducation. Some institutions know the highschool graduation potential of their primaryrecruitment locations. Recent high schoolgraduates, traditionally part of the 18- to25-year-old group, no longer comprise theentire first-time enrollment group. Becausethe size of other age groups will remain rela-tively steady through 1990, the decreasingsize of the 18- to 25-year-old group does notnecessarily mean that actual first-time enroll-ments will decline. (Only "potential decline"is under consideration.) First-time enroll-ments are only a part of overall enrollments,and a set of projected institutional attritionratios should allow calculation of the overallpotential enrollment declines. The computedenrollment decline percentage, when appliedto current tuition revenues, wi:. Alow in cur-rent dollars the potential overall dollar effectof the decline. Enrollment declines that resultfrom competitive programs now availg-':. at

62

1979 1980 1981 1982

peer institutions should not be ignored inthese estimates.

Rules vary from institution to institutionas to when a student account becomes uncol-lectible. In determining this statistic, the ad-vice of the institution's auditors should befollowed.

"Student accounts receivable" should notinclude credit balances or advance billings.This will allow an accurate assessment of theamount unpaid from previous billings.Interpretations

The larger the potential decline in enroll-ments, the more the institution should bepreparing to build financial resources, reas-sess marketing strategies, and plan budgetreduction possibilities.

The probability rises that total revenuesfor the year are overstated as the proportionof student revenues outstanding at year-endgrows. Increases in this proportion indicateeither a problem in collection procedures or achange in the ability and willingness of stu-dents to pay. This may signal a trend in de-creased student financial responsibility as wellas an increase in the risk of cash-flow prob-

$

$

$

29

lems. Since students who drop out may beless willing to finish payment of their ac-counts, decreases in retention may accom-pany the increases in unpaid accounts.

Growing unpaid accounts may also stemfrom schedule changes, difficulties withfederal and state aid programs, and shiftsfrom semester to quarter systems or viceversa.

LimitationsEnrollment projections are not based on

actual data. The true outcomes remain un-known, and there is much debate about thesize of future enrollments.

Also, a change of auditors may cause achange in the rules for write-offs and maymake year-to-year comparisons uncertain.

Further AnalysisMeasurable risks not covered on the

worksheet include pending litigation, poten-tial interruptions of funds from state or

'federal sources or from gifts, and large un-planned expenditure increases for items suchas utilities.

6,1

30

Nonfinancial Resources: Indicators and Calculations

A. Student Characteristics1. Average test scores of entering freshmen2. Selectivity (same as Acceptance Rate)3. Percentage of entering students from top 20%

of high school class4. Percentage of entering students from top 40%

of high school class

B. Institutional Attraction1. Yield Rate

Calculation: New students (freshmen and transfers)Acceptances of freshmen and transfer applicants

2. Retention:Calculation: Percentage of previous year's eligible

students who enroll for next class

3. Student Services Expenditures per StudentCalculation: Student services expenditures**

Total student headcount (fall)

C. Academk Program1. Instruction Proportion*

Calculation: Instruction expendituresE&G + MT minus restricted fund scholarships

2. Instruction per FTE StudentCalculation: Instruction expenditures"

FTE students (fall)

D. Faculty1. Change in Average Compensation*

Calculation: Average full-time faculty compensation***

2. Student to Faculty Ratio*Calculation: FTE students

FTE faculty

E. StaffCalculation: Total student headcount (fall)

FTE administrative exempt staff(excluding auxiliary staff)

F. Deferred Physical Plant MaintenanceCalculation: Estimate of deferred

physical plant maintenanceE&G + MT

'Core Statistic**Deflated by Higher Education Price Index (HEPI):

1971=1.00"'Deflated by Consumer Price Index (CPI): 1971=1.00

Significance of StatisticChanges in student characteristics can

materially affect the nature and mission ofthe institution.

No value judgment is made about theproper direction of change for the studentcharacteristics measured (test scores andselectivity, for example). Declines in the fol-lowing indicators may reflect a relative de-crease in the ability or effort to attract stu-dents whose preparation matches that of pre-vious students. Such declines may also resultfrom increased competition or decreasedavailability of students.

G ; )

Calculation WorksheetAcademic year ending: 1976 1977 1978 1979 1980 1981 1982

A. Selectivity (same as Acceptance Rate,p. 24)

B. Average test scores of enteringfreshmen

C. Percentage of entering students fromtop 20% of high school class

D. Percentage of entering students fromtop 40% of high school class

31

(47')

(48') % % % % % % %

(49') % % % % % % _______ %


Median Values for Similar Institutions FTE ---5. 1500. fromLiberal Arts Colleges II

Academic year ending: 1976 1977 1978 1979 1980 1981 1982

Percentage of entering students fromtop 20% of high school class

(15 institutions) 32% 33% 34% 35%

Percentage of entering students fromtop 40% of high school class

(15 institutions) 48% 57% 59% 63%

Source: Audited financial statements coded to NACUBO standards. John Minter Associates. Boulder. Colorado.

Explanation of CalculationsEither SAT or ACT scores or a com-

posite may be used. (See the following ta-bles.) Year-to-year consistency is most impor-tant.

See pages 24-25 for an explanation of theselectivity (Acceptance Rate) calculation.

66 f;7

32

SAT Score Averages for College-Bound Seniors,1975-1979

Verbal Mathematical

Male Female Total Male Female Total

1975 437 431 434 495 449 472

1976 433 430 431 497 446 472

1977 431 427 429 497 445 470

1978 433 425 429 494 444 468

1979 431 423 427 493 443 467

Source. "National Collcgc -Bound Seniors." 1979 Admissions Testing Program of the Collcgc Board. Princeton. Ncw Jerser. . 1979

ACT Means and SDs* for Successive Years of Tested College-Bound Students

YearEnglish

Mean SD

Total (males and females combined)NaturalScience

Mean SDMath

Mean SDSocial Studies

Mean SDCompositionMean SD Males Females Total

1975-76 17.2 5.5 17.1 7.7 16.6 7.4 20.4 6.6 17.9 5.9 412,717 475,358 888.075

1976-77 17.3 5.4 16.8 7.9 16.9 7.4 20.4 6.6 18.0 6.0 388.891 458.711 847,602

1977-78 17.4 5.5 16.8 7.8 16.6 7.3 20.4 6.6 17.9 6.0 401,670 481,360 883,030

1978-79 17.5 5.5 16.9 7.6 16.7 7.3 20.6 6.4 18.1 5.8 408,666 487,579 896,245

'Standard deviation

Source "Class Profile Service." The Amcncan Collcgc Testing Program. Iowa City. Iowa. 1980.

G6

InterpretationsDeclines in selectivity and achievement.

One interpretation of declines in freshmenentering average test scores and selectivity isthat insufficient funds have been allocated torecruitment and to various "attracting" re-sources such as athletics, the academic pro-gram, and the campus environment.

These resources should be separatelyanalyzed to determine if they are causing de-clines in the preparation of students, as meas-ured by selectivity and test scores.

Changes in competing peer institutions,demographic shifts, and swings in socialvalues all have the potential to diminish therelative worth of attracting resources. Theseexternal changes should be monitored tocomplete the interpretation of shifts in stu-dent characteristics.

LimitationsAny "quality" measure such as test

scores or selectivity can be misleading. Testscores measure test performance very effec-tively and student suitability for college lesseffectively. Also, national trends in testscores should be considered.

Many institutions are justifiably moreinterested in what they can do for studentsthan in the caliber of students recruited.These institutions do not depend on testscores as an indicator of student suitability.Trends in test scores merely reflect changesin precollege preparation of the pool of stu-dents usually drawn to the college.

Further AnalysisChanges in the total enrollment and in

the composition of students (including ageand interests) are also important. For exam-ple, older students may have lower test scoresbut may be a major addition to the institu-tion.

(3 :1

34

Significance of StatisticAnother important resource is repre-

sented by institutional attraction and indirect-

Calculation WorksheetAcademic year ending:

Yield Rate

ly by Student Services Expenditures per Stu-dent. The ability of the institution to drawand hold students is a function of academicprograms, reputation, available student ser-vices, competition, recruiting, and the typesof students it has historically drawn. Deterio-ration in the following proxies signals a de-

cline in the core activities of the institution asperceived by current and potential students.

1976 1977 1978 1979 1980 1981 1982

A. New students (freshmen and transfers)(45*)

B. Acceptances of freshman and transferapplicants (44*)

C. Yield Rate (A divided by B): % % % % % % %

RetentionD. Percentage of previous year's eligible

students who enroll for next class: (46*) % % % % % % %

Student ServicesE. Total student headcount (fall) (51')F. Student services expenditures (17*) $ $ $ $ $ $ $

G. Higher Education Price Index(1971 = 1.00) 1.379 1.468 1.567 1.689 1.856

H. Deflated student services expenditures(F divided by G): $ $ $ $ $ $ $

I. Constant (1971) Dollar Student ServicesExpenditures per Student (H divided by E): $ $ $ $ $ $ $


Median Values for Simi liar Institutions FTE E 1500, fromLiberal Arts Colleges II

Academic year ending: 1976 1977 1978 1979 1980 1981 1982

Yield Rate (freshmen and transfers)(18 institutions)

Constant (1971) Dollar StudentServices Expenditures per Student

(27 institutions)

1.2 1.4 1.4 1.3

$243.50 $253.20 $255.60 $242.30

Source: Audited financial statements coded to NACUBO straldards. John Mintcr Associates. Boulder. Colorado.

((171

Explanation of CalculationsThe NACUBO definition for student

services functions is given in appendix B.Acceptances should be comparable to

the group of applicants so the Yield Rate is

calculated with consistent data. There aremany ways to calculate retention (for exam-ple, with or without dropouts or returningstudents). Because of the lack of annual na-tional data, any convenient and consistentmethod is appropriate for internal compari-sons.

Dividing by the Higher Education PriceIndex (HEPI) removes the effect of inflationon expenditures. Dividing by the headcountprovides an estimate of the level of sery ceavailable to each student.

InterpretationsDeclines. A decline in retention may in-

dicate an erosion in the attractiveness of theinstitution. Such erosion could be caused by adecline in student services or in other re-sources that build student commitments.Also, the institution may be attracting stu-dents less likely to be retained.

Increases. Students are being attracted toand are staying with the institution.

LimitationsIn many cases changes in retention rates

are affected more by the type of student re-cruited and by student options such as workand competing schools than by institutionaldecisions or actions.

The student service function containsmany expenditures of limited benefit to stu-dents and is not solely responsible forchanges in retention. For example, the effectof greater federal reporting requirements forstudent aid will show up as an increase in ex-penditures, whereas the effect of this par.

ticular expenditure on short-run studentretention is probably negligible.

Retention figures may be misleading ifacademic dismissals are mixed with dropoutstatistics. Declining retention, if caused by in-creased academic dismissals, may in factsignal potentially improved conditions fordrawing and holding students.

Further AnalysisRetention problems call for a set of de-

tailed analyses beyond the scope of thisworkbook. Examples are exit interviews,follow-up studies of students who leave, andattitude surveys.

Decreases in Student Services Expendi-tures per Student may be analyzed further byfollowing trends in the separate budgets (perstudent) of financial aid, counseling, in-firmary, and other offices in student services.It may also be helpful to include dormitorycounselors in the analysis if their cost isnormally charged to auxiliary services.

7'

36


A. InstructionB. E&G + MT

Fiscal year ending:

(13')(23')

C. Scholarships and fellowships fromrestricted funds

D. E&G + MT minus scholarships andfellowships from restricted funds(B minus C)

E. Instruction Proportion (A divided by D):

F. Higher Education Price Index(1971 = 1.00)

G. Instruction in constant (1971) dollars(A divided by F)

H. FTE students (fall)

I. Instruction per FTE Student inConstant (1971) Dollars(G divided by H):

(21')

(50")

Significance of StatisticInstitutions struggling with enrollment

and fund-raising problems may be neglectingthe academic program, their most importantresource. The purpose of this statistic is todetermine if the college has been maintainingthe allocation of resources to the academicprogram.

The proportion of the budget spent on

instruction indicates the institution's sense ofpriority for this activity. In many cases prior-ity is affected by the need to intensify thefund-raising program and emphasize recruit-ing activity. Comparisons with peer institu-tions and a history of the instruction budget'srole will show the extent to which the collegeis capable of protecting and enhancing itsacademic resources.

$

1976

$

1977 1978

$ $

1979

$

1980

$ $ $ $ $

$ $ $ $ $

$ $ $ $- $

% % % %

1.379 1.468 1.567 1.689 1.856

$



$ $ $

$

$

$

$

$ $ $

FTE --5. 1500, from Liberal Arts Colleges II

1976 1977 1978 1979 1980 1981 1982

Instruction Proportion(28 institutions)

Instruction per FTE Studentin Constant (1971) Dollars

(27 institutions)

42.3% 42.1%

$955.30 $944.60

41.7% 40.4%

$870.70 $921.00

"Less restricted and unrestricted scholarships and fellowships.Source: Audited financia. statements coded to NACUBO standards, John Minter Associates, Boulder, Colorado.

,S

7,1

Explanation of CalculationsRestricted scholarships, whether federal

or institutional, are not included in the calcu-lation because they are not measures of insti-tutional activity and, if included, would dis-tort the calculation. For example, becausesome institutions record BEOGs in currentfunds rather than in agency funds, removingBEOGs from the calculation enhances con-sistency.

InterpretationsDecreasing proportion. Less emphasis on

instruction means the institution has been dis-tributing its revenues away from its primaryfunction. If previous statistics have shown in-creasing financial reserves, then a decliningInstruction Proportion may show that the ap-parent prosperity has not come from in-creased revenues but perhaps from a diver-sion of funds.

In institutions with declining financialresources, decreases in the Instruction Pro-portion may also occur because of greater de-mands for administrative expenditures suchas admissions or fund raising.

Decreasing instructional costs per student.When instructional costs per student decline,students are receiving less (on a cost basis)from the academic program. In many casesthis may be an indication of improved opera-tion and is quite acceptable. In other cases itmay indicate academic program cutbacks.

Increases. More resources are being ac-cumulated in the academic program com-pared to the overall budget. Another possi-bility is that the number of students has notincreased. If the institution remains financial-ly strong elsewhere, this is a positive indica-tion of increased commitment of resources tothe primary program.

LimitationsA decrease in instruction expenditures as

a proportion of the operating budget may notindicate an absolute decline. Instruction Pro-portion and Instruction per FTE Student mustbe viewed together. The most severe limita-tion of these statistics is their inability tomeasure changes in quality. Increasing op-erating efficiency may result in overall qualityincreases even though the statistics show de-cline.

Further AnalysisAnalysis of the absolute change in aca-

demic offerings and in the efficiency of theacademic program is also possible. The fol-lowing questions briefly outline this analysis:

How many degree credit majors havebeen offered each year? (Changes inthis number indicate absolute programchanges.)How many courses are listed per en-rolling student? Course proliferationindicates decreasing efficiency but issomewhat beneficial to the overallprogram. Course proliferation is aproblem, however, when the level ofacademic resources is constant.What proportion of course sectionshave 50 or more students? What pro-portion have six or fewer? (Changes inthese two proportions may indicatechanges in the efficiency of course of-ferings as measured by the proportionof very small or very large classes.)

7

38

Significance of StatisticFaculty is another institutional resource.


By measuring average faculty salary trendsand the Student to Faculty Ratio, the analystis able to compare faculty trends to trends inother resources.

Many decisions faced by administratorsare resource allocation decisions. The facultystatistics may indicate that more resourcesshould be allocated to areas such as facultycompensation or the number of faculty.

Fiscal year ending: 1976 1977 1978 1979 1980 1981 1982

A. Average full-time faculty compensation(salary and benefits) (25') $ $ $ $ $ $ $

B. Consumer Price Index (1971 = 1.00) 1.396 1.477 1.577 1.750

C. Full-time faculty compensation inconstant (1971) dollars (A divided by B) $ $ $ $ $ $ $

D. Change from previous year: % % % % % %

E. FTE students (fall) (50")

F. FTE faculty (fall) (39')G. Student to Faculty Ratio (E divided by F):

Refers to corresponding item on worksheet in chapter 3, "User Data."


1976

Average full-time faculty compensation**(14 institutions) $13,616

Full-time faculty compensation inconstant (1971) dollars

(14 institutions) $9,873

Change from previous year(14 institutions)

Student to Faculty Ratio

FTE 1500, from

1977 1978

Liberal Arts Colleges II

1979 1980 1981 1982

$15,155 $16,316 $17,190

$10,317 $10,412 $10,178

+4.5% +.009% 2.2%

(20 institutions) 14.9 15.6 15.6 16.3

"Compensation = salary + fringe benefits.Source: Audited financial statements coded to NACUBO standards, John Minter Associates, Boulder, Colorado.

f

Faculty Pay*: Year-to-Year Increases in Average Salaries and theEffect of Inflation

Academic years: '75-'76 '76-'77 '77-'78 '78-'79 '79-'80In current dollars:Professor +6.2% +4.7% +5.2% +5.6% +7.5%Associate +5.9% +4.7% +5.4% +5.8% +7.0%Assistant +5.7% +4.7% +5.3% +5.9% +6.8%Instructor +6.1% +4.7% +5.4% +6.0% +6.4%All ranks +6.0% +4.7% +5.3% +6.0% +7.1%

After adjusting for inflation:Professor -0.8% -1.0% -1.4% -3.5% -5.3%Associate -1.1% -1.0% -1.2% -3.3% -5.7%Assistant -1.3% -1.0% -1.3% -3.2% -5.9%Instructor -0.9% -1.0% -1.2% -3.1% -6.3%All ranks -1.0% -1.0% -1.3% -3.1% -5.6%

For institutions reporting comparable data for each one-year period since 1969-70.

Source. "Annual Report on the Economic Status of the Profession, 1979-80."Academe. Bulletinof the American Association of University Professors, Washington, D.C., AAUP. September 1980

Explanation of CalculationsThe Consumer Price Index was used to

demonstrate changes in faculty putchasingpower.

InterpretationsNo increase in constant dollar compensa-

tion. Zero percent increase means averagefaculty compensation matched inflation.

Negative compensation increases. Com-pensation has not kept up with inflation. Theresource may be eroding.

Positive compensation growth. The re-source is being maintained and improved.(Even if faculty salaries at all institutions in-crease more than inflation, however, othersectors of the economy may be luring someof the best faculty.)

Changes in Student to Faculty Ratio.Changes here should be in step with changesin instructional expenditures per FTE stu-dent.

LimitationsFaculty compensation changes may not

always reflect changes in efficiency of instruc-tio;a1 delivery or changes in quality. Effec-tive instruction can be measured only bymuch more complex tools. The Student toFaculty Ratio suffers from the same limita-tions. The ratio can show only problemscreated by inflation's effect on real salaries orby the inordinate growth of average classsizes.

Turnover savings are masked by measur-ing average faculty compensation for both

39

continuing and new faculty. Continuing facul-ty may be receiving adequate increases.Nonetheless, if average faculty salaries aredown, the salary of the institution's "typical"faculty member may be slipping in purchasingpower and in prestige, when compared withthe pay of other workers in the economy. Anerosion of overall faculty quality could resultas faculty members are drawn away to othersectors of the economy.

Further AnalysisAnalysis of the salary growth of continu-

ing faculty can be facilitated by assemblingAAUP/HEGIS faculty salary questionnairesfrom several years. Annual compensationchanges can be calculated for each rank ofcontinuing faculty.

Trends in Student to Faculty Ratios maybe further analyzed by calculating (for eachacademic discipline) student credit hoursgenerated per FTE faculty member. This al-lows isolation of particular departments mostresponsible for various trends.

The proportion of part-time facultyamong total full-time equivalents can also beimportant. Shifts toward more part-timefaculty may suggest major changes in campusatmosphere and increases in budget flexibil-ity.

7!)

40

.

-011:ycettiATATawr

Significance of Statistic,Those responsible for administering the

institution are another measurable resource.Increases in the number of staff may explainsome other trends, especially declines in in-struction as a proportion of total expendi-tures.



A. Total student headcount (fall) (51')

B. FTE administrative exempt staff(excluding auxiliary staff) (fall) (40.)

C. Students to FTE AdministrativeExempt Staff Ratio (A divided by B):

Refers to corresponding item on worksheet in Chapter 3. "User Data."


Explanation of CakulationsStudents to FTE Administrative Exempt

Staff Ratios should be measured by using aconsistent date such as October 15. Full-timeequivalence for staff should be based on theportion of the work week committed to theinstitution. Residence and dining hall staffare not included. Hourly staff, called "nonex-empt," are excluded to simplify this measure.

Headcount students are compared to ad-ministrative staff because of the administra-tive burden of each student, whether full- orpart-time.

Student workers are not included unlesstheir contribution is equivalent to regularstaff contribution and their pay nearlyequivalent to regular staff pay.

InterpretationsChanges in Students to FTE Administra-

tive Exempt Staff Ratio. This ratio indicateschanges in the burden of administering thecollege. If the ratio is increasing, efficiencymay be increasing.

LimitationsNo change in administrative quality or

institutional effectiveness is actually meas-ured. There are no known guides for measur-ing the adequacy of administration.

Further AnalysisIncreases in administrative burden may

explain many of the changes in staffing

levels. It will be helpful to collect numbersfor and observe trends in the following:

o Student applicationso Students applying for financial aido Financial transactionso Payroll checks writteno Athletic events

42

-Al

Significance of StatisticThe condition of the physical plant

should be monitored for a more comprehen-sive view of the condition of the institution'sresources. Neglect of maintenance may haveserious implications for health and safety andmay create an unsightly campus that erodesan institution's ability to attract students.



A. Estimate of deferred physical plantmaintenance (37') S S $ $ $ S S_____

B. E&G + MT (23') S S S S S S S

C. Deferred Maintenance Ratio(A divided by B):

'Refers to corresponding item on worksheet in Chapter 3. "User Data


Explanation of CalculationsTo interpret this statistic properly, guide-

lines for the definition of deferred mainte-nance are necessary. The statistic should in-clude all repairs undone at the end of thefiscal year. These are repairs that would nor-mally have been done to keep buildingsfunctional and that will have to be doneeventually. Painting and roof or steam linerepairs are obvious examples. Renovationsshould be included, especially if they arenecessary for the continuation of an essentialprogram. Accommodations for the handi-capped should not be included unless theinstitution has made an irreversible commit-ment to make the campus accessible to hand-icapped students.

Another method of calculating deferredmaintenance is to "zero-base budget" allrenovation and repairs each year. Whateveris not funded in the budget is thus deferred.

InterpretationsGrowth in Deferred Maintenance Ratio.

By comparing the amount of deferred main-tenance with the expenditure budget, a betterunderstanding of the size of the former canbe obtained. When the ratio represents asignificant portion of the budget, it is clearthat normal revenues will be unable to re-duce building neglect.

Negligible Deferred Maintenance Ratio.Buildings are being maintained and pre-served.

LimitationsNo acceptable national standards for as-

sessing deferred maintenance have beenestablished. Clearly, some deferrals are morecostly or more unsightly and dangerous than

others. Some may also be in violation ofbuilding codes.

In an overall analysis of the operatingbudget, the importance of the ratio is 'e-duced if institutions regard deferred mainte-nance problems as "outside the regularbudget" and as the object of fund-raisingcampaigns.

Further AnalysisThe following statistics may be useful in

evaluating the physical plant as a resource:FTE students per net assignablesquare foot of building area. (Trendsin this measure will show how theinstitution physically adapts to changesin the number of students.)Plant operations and maintenancecosts (not including utilities) in con-stant dollars per gross area of build-ings (in square feet). (This measureshows trends in "normal" maintenancebudgets. At times, budget squeezesput extraordinary pressure on thisfunction, resulting in a lengthening listof deferred maintenance projects.)

b 5

44

Significance of StatisticThis page is reserved for an estimate of

hidden nonfinancial resources such as loca-tion, trustees, image, new programs, proxim-ity to resources such as museums or culturalcenters, and trends in perceptions of the in-stitution's quality. Some hidden resources(excess capacity and changing regional eco-nomic conditions, for example) may have anegative effect.

Changes Affecting Financial Resources: Indicators and Calculations

A. Student-Derived Revenue Trends

1. Constant (1971) Dollar Net Student Revenue*Calculation: Tuition and fees minus scholarships

and fellowships from unrestricted funds**2. Constant (1971) Dollar Tuition Rate"3. Financial FTE Enrollments'

Calculation: Net student revenueTuition and fee rate per year

for a full-time student4. Tuition Discount Factor'

Calculation: Financial FTE enrollmentsFTE students

B. Government-Derived Inflow Proportion

Calculation: Total government-related inflowsCurrent fund revenues

C. Revenue Bar Graphso Tuition and feeso Appropriationso Grants and contractso Giftso Endowment incomeo Other revenues

D. Contributed Services RatioCalculation: Value of contributed services

E&G + MTE. Expenditures per Student

Calculation: E&G+MT minus scholarships and fellowships from restricted funds**FTE students (fall)

F. ExpendituresUnit Trendso Average exempt staff salarieso Books and periodicalso Utilities

6 /

45

G. Expenditure Bar Graphso Instructiono Researcho Public serviceo Academic supporto Student serviceso Institutional supporto Operation and maintenance of planto Scholarships and fellowships (unrestricted only)o Mandatory transfers

'Core Statistic"Deflated by Higher Education Price Index (HEPI): 1971=1.00

y)-ex,st-';

Significance of StatisticThe stability of student-derived revenue

depends on several factors: enrollment mustremain level; the tuition rate must keep upwith inflation; and student aid from unre-stricted funds should not increase faster thaninflation unless extra enrollments bring insufficient revenue to cover the extra costs. Alack of strength in the indicator means theinstitution is no longer drawing revenue fromstudents as it once did. It may be necessaryto examine policies for tuition, recruitment,and student aid.

68

46


A. Tuition and fees (1') S $ $ $ $ $ $

B. Scholarships and fellowships fromunrestricted funds (20') $ S $ $ S $ $

C. Net student revenue(A minus B) $ $ $ $ $ $ $

D. Tuition and fee rate pea yearfor a full-time student (12') $ $ $ $ S $ $

E. Higher Education Price Index(1971 = 1.00) 1.379 1.468 1.567 1.689 1.856

F. Constant (1971) Dollar Net StudentRevenue (C divided by E) $ $ $ $ $ $ $

G. Change from previous year: % % % % % %

H. Constant (1971) Dollar Tuition Rate(D divided by E) $ $ $ $ $ $ $

I. Constant (1971) dollar tuition changefrom previous year: % % % % % %

J. Financial FTE Enrollments(C divided by D):

K. Financial FIE Enrollment change fromprevious year: % % % % % %

L. FTE students (fall) (50')

M. Tuition Discount Factor (.1 divided by L):


Median Values for Similar Institutions FTE ---s. 1500, from Liberal Arts Colleges II

Change in Constant (1971) Dollar NetStudent Revenue (20 institutions)Change in Constant (1971) DollarTuition Rate (20 institutions)

Change in Financial FIE Enrollments(20 institutions)

Tuition Discount Factor (20 institutions)

1976 1977 1978 1979 1980 1981 1982

7.1% 4.6% 4.8%

3.1% 0.2% 0.7%

2.4% 8.6% 6.5%1.16% 1.18% 1.19 1.16

"Less restricted and unrestricted scholarships and fellowships.Source: W. John Minter and Howard R. Bowen, Independent Higher Education: Fifth Annual Report on Financial and Educational Trends in the Independent

Sector of American Higher Education, Washington, D.C., National Institute of Independent Colleges and Universities, 1980.

Explanation of CalculationsUnrestricted (or "unfunded") student aid

is deducted because it represents a tuitiondiscount. B., deducting such aid, the true netrevenue received from students is shown.

Dividing the net figure by the HigherEducation Price Index gives an indication ofwhat this revenue can buy in constant dollars.Year-to-year growth of zero percent indicatesthe institution is keeping up with a roughmeasure of inflation.

The financial FTE is an imputed enroll-ment figure determined by dividing tuitionrevenue by the tuition rate (both in currentdollars). Part-timers, full-timers, and summerenrollments are equated only according totheir contribution to tuition revenue. Stu-dents with tuition waivers are not countedunless a bookkeeping entry crediting tuitionrevenue and charging an expense such asbenefits is made. Financial FTE is the "busi-ness manager's enrollment," the equivalentnumber of full-time tuition payers. It is af-fected by an increased number of refunds, bychanges in spring semester and summer en-rollments, and by changes in tuition remis-sions. Thus, it is financially more useful thanthe fall enrollment count. The Tuition Dis-count Factor reflects the discrepancy betweenthe financial FTE and fall FTE.

InterpretationsDeclines in net student revenues. The

causes of a decline can be determined byexamining the other lines on the worksheet.

Calculation Worksheet (supplement)

Fiscal year ending:

N. Instruction expenditure (13')0. Tuition revenue to instruction expenditure

ratio (C divided by N):

Falling enrollments, subinflation tuition in-creases, or too much student aid may be in-volved. Subinflation tuition makes "catch-up"increases very difficult should an institutionface a revenue crisis. Falling enrollmentsrequire a major analysis of the institution'srecruiting and academic policies.

Level net student revenues. In this situa-tion, student support of the institution is ashigh as at the beginning of the period.

Increasing net student revenues. General-ly, this is associated with increasing enroll-ments. The institution should note whethertuition rate trends add to or detract from anyincreases in net student-derived revenue.When enrollment growth slows, many institu-tions must turn to larger tuition increases.

LimitationsEnrollment changes are caused by many

factors, one of which is tuition price. Mostcollege administrators realize, however, thatchanges in institutional reputation or college-going preferences may be more telling.

Merely keeping up with the national col-lege and university inflation index may be in-sufficient to keep the institution financiallysound. Local inflation may be higher, or theinstitution may find that other sources of rev-enue do not grow at the rate of budgetaryinflation.

Further AnalysisEnrollment changes may be further ana-

lyzed by examining "market share" changesover time. The institutions may wish to meas-

1976 1977 1978


47

ure its freshman class as a proportion of thetotal of its 10 closest competitors' freshmanclasses. The institution may thus determine ifit is losing ground against competitors or if itis merely the victim of declining numbers ofpotential students. Losses to competition callfor a strong program to differentiate the insti-tution. A decline in the number of availablestudents, however, means the institutionshould consider reducing programs or attract-ing new types of students.

It may be necessary to examine unre-stricted aid policies. Are all "unmet needs"met by the institution? Is more aid thannecessary being given in order to stimulateenrollment? Has some dollar amount beenfixed as the limit of financial aid awardedfrom unrestricted funds? These policies mayhave been altered in the last five years andmay be responsible for some of the changesnoted above.

Another measure of the adequacy of tui-tion revenue trends warrants attention. Theratio of tuition revenue to instruction expen-diture shows the tuition-supported proportionof expenditure that is applied to the directeducation of the student. In effect, changesin instruction expenditures are compared withtuition revenues.

1979 1980 1981 1982

$ $ $

9:2

48

Significance of StatisticShifts in this proportion may indicate

major changes in the revenue strategy of theinstitution and an increase in risk. Growingdependence on government funds may be theonly reasonable way for the institution to


proceed, given that government student aidprograms have undergone major changes.The institution should know how these shiftsaffect its own programs, however. Most gov-ernment funds require greater administration,accountability, and reporting than unre-stricted tuition revenue. This shift of revenuecan contribute to shifts in the overall char-acter of the institution. Increases in govern-ment-derived revenue show that the institu-tion acknowledges the goals advanced inCongress' higher education funding legisla-tion. The institution's mission may shift if itspriorities differ from legislated goals.

Fiscal year ending: 1976 1977 1978 1979 1980 1981A. Government appropriations (federal,

state, local) (2') $ $ $ $ $ $ $B. Government grants and contracts (federal,

state, and local, including scholarshipaid, work-study revenues, research funds,education "title" funds, etc.) (3') $ $ $ $ $ $ $

C. All government student aid not includedin revenues listed in A and Babove (56') $ $ $ $ $ $ $

D. Total government inflows(A plus B plus C) $ $ $ $ $ $ $

E. Total current fund revenues (9') $ $ $ $ $ $ $F. Proportion of current fund revenues paid

(directly or indirectly) by governmentsources (D divided by E):

Refers to corresponding item on worksheet in chapter 3. "User Data."

Median Values for Simi Ipr Institutions: Not available.,9 ,1

1982

Explanation of Calculations

Some funds from government sources,such as BEOGs, which do not flow directlythrough the institution's current funds, aretreated as a tuition revenue replacement andhave been included. Other government-derived revenue such as veterans benefitscould have been treated similarly, but figuresare not always available.

Dividing by curTent fund revenues givesthe proportion of current fund support, in-cluding auxiliaries, that originates with thegovernment.

InterpretationsIncreasing dependence on government-

derived revenue. Increasing dependence im-plies that government revenues are replacingother revenues or that government revenuesare supplementing other revenues (or both).If government revenue is replacing otherforms of revenue, the institution should iden-tify those constituents that are reducing sup-port. Are gift revenues declining? Are fundsfrom parents and students failing to matchoverall growth? If government-derived reve-nues are supplementing other forms of in-come, the institution should determine if newprograms, or program expansions made pos-sible by the additional government funds, areconsistent with the planned direction of theinstitution.

Limitations

Some scholarship aid does not go to theinstitution but must be used by students topay off-campus expenses. To that extent, theratio is partially inflated.

Several forms of indirect dependence ongovernment, including tax advantages, socialsecurity, and veterans benefits, have not beenincluded.

Further AnalysisState, federal, and local revenue sources

may be calculated separately to identify thegovernment sector in which the largest in-creases have occurred.

Student aid (need-based or otherwise),unrestricted funds, and program funds areareas that may further explain changes independence.

9 5

50

Significance of StatisticChanges in the proportion of support

from various sources can be used to find both

Calculation WorksheetValues needed to fill in the bar graphs

can be calculated on the following worksheet.

strengths and weaknesses in an institution'srevenue strategy. Of greatest concern are de-clines in the proportion of revenue from giftsand marked increases in the proportion ofrevenue from tuition. Institutions that be-come more heavily dependent on tuitionrevenues are offering students less for theirmoney. In this situation the added benefitsbrought by other sources of revenue may bedeclining.

Fiscal year ending: 1976 1977 1978 1979 1980 1981 1982A. Tuition and fees (1') $ S S S S S S

B. Government appropriations (federal,state, and local) (2') S S S S S S S

C. Government grants and contracts (3') $ S S S S S S

D. Private gifts, grants, and contracts (4') S S S S S S S

E. Endowment income (5') $ S S S S S S

F. Other current fund revenues (6') S S S S $ S S

G. E&G + MT (23') $ S S S S S S


ProportionsH. Tuition (A divided by G):I. Appropriations (B divided by G):

J. Grants and contracts (C divided by G):K. Private gifts (D divided by G):L. Endowment income (E divided by G):

M. Other revenue (F divided by G):

1976 1977 1978 1979 1980 1981 1982

Revenue Proportionsfor Five Years

100%

80%

60%

40%

20%

0%

Tuition6 7 78 '79 '80 '81 '82

Appropriations Grants and Contracts'76 7 '78 79'80 '81 '82


100%

80%

60%

40%

20%

0%

Tuition

'76 '77 '78 79'80 '81 '82

t

..

.,

,bti....

t---.

z..

-..1...I

4

'76 '77 8 /9 '80 '81'82

51

Instructions: For each year in each category,draw a line indicating the percentage of totalrevenues.

Private Gifts Endowment Income/6 /7 '78.79 '80 '81 '82 6 '77.78 9 '80 '81 '82

Other Revenue6 '77 '78 /9 '80 '81 '82

100%

80%

60%

411%

20%

0%

FTE 1500, from Liberal Arts Colleges II

Appropriations Grants and Contracts Private Gifts Endowment Income Other Revenue6 7 '78 '79'80 '81 '82 '76 '77 8 9 '80 '81 '82 /6 77 8 9 '80 '81 '82 '76 '77.78 9 '80 '81 '82

,00

,0.,

C.1

CrsCN1 Cs1 °!O ci 0

C1tr;.-1

N`ci- ""/

`c5-V


9 d

'76 '77 /8 9 '80 '81 '82

coN:,..1

tr!t"1

:%;?

0:c.-)

..',..i

co("NI

-;,4,.

99

100%

80%

60%

40%

20%

0%

52

Explanation of CalculationsThe revenue categories were chosen

because of their availability in annual finan-cial reports.

By dividing by educational and generalexpenditures and mandatory transfers, thecollege can measure the proportion of ex-penditure support given by each revenuecategory.

InterpretationsIncreasing tuition dependence. Students

are paying a larger portion of the costs ofeducation. However, if dependence on gov-ernment is increasing as well, the net increaseto students and parents may be negligible.

Decreasing gift dependence. Fund raisingis not keeping up with the overall growth ofthe budget.

Decreasing endowment income growth.There are many potential factors here. Seethe Endowment Ratio in the "Financial Re-sources" section for further analysis.

LimitationsChanges in revenue dependence are not

necessarily positive or negative. They do re-flect shifting revenue strategies, intended orunintended, and are worthy of investigation.

Further AnalysisAn interesting set of deeper analyses in-

volves the gift revenue proportions. Severalimportant pieces of information showinghistorical trends should be gathered:

What proportion of alumni contribute?What is the average gift?What is the breakdown among alumni,foundation, corporate, and other gifts?What was spent on fund raising?What was the cost of each dollarraised?

-1 u u

Significance of StatisticThe extra "education value" that a

church-related institution can offer is oftenpartially provided by the contributed servicesof religious personnel. The financial value ofthese services is one measure of the sponsor-ing religious body's commitment to the mis-sion of the institution. Services contributedby religious personnel allow the institution toprovide distinctive services at lower cost tostudents.

Calculation WorksheetFiscal year ending: 1976 1977 1978 1979 1980 1981 1982A. Market value of services provided by

religious personnel S S S $ S S SB. Actual cash payments for services of

religious personnel $ S S S S S SC. Value of contributed services (including

gifts and other types). (A minus B)(Some institutions may wish to fill outthis line directly, omitting A and B.) (10') S $ S S S S S

D. E&G + MT (23*) $ S $ S $ S $E. Contributed Services Ratio (C divided by D):

Refers to corresponding item on worksheet in chapter 3. "User Data."


101102

53

54

Explanation of CalculationsIn many institutions the value of contrib-

uted services is available directly from finan-cial statements as part of the gifts revenueitem.

Dividing by total expenditures measuresthe budget proportion supported by contrib-uted services.

InterpretationsDeclines in the proportion of support.

Both the character and the financial base ofthe institution are changing. The religious"presence" may be declining as an importantbasis of the institution's financial stability.

Level proportional support. Althoughthis trend does not have the strongly negativeconnotations of a proportional decline, somefurther analysis may be necessary to deter-mine the potential for decline. Many sponsor-ing religious organizations do not have asteady flow of new personnel. As the age ofcontributing personnel increases, the poten-tial for sharp declines in this source of sup-port increases.

Growing proportional support. Strengthin this area is indicated.

Limitations

To the extent that the presence of relig-ious personnel in academic, administrative,and suppott service positions is perceived asintegral to the mission and identity of theinstitution, the ratio may understate theirvalue in attracting students and external gifts.To the extent that religious personnel areseen as less than fully qualified for the posi-tions they hold, the opposite may be true.

Further AnalysisThe average age of contributing religious

personnel can be estimated and shown as atrend.

103

Significance of StatisticTrends in spending per,student can indi-

cate problems with budget control andchanges in efficiency. Large increases may in-dicate an inability to adjust expenditures tochanges in the size of the student body. Un-less revenues increase as fast on a per studentbasis, the institution will lose resources.


A. E&G + MT (23') $ $ 3 $ $ $ $B. FTE students (fall) (50')C. Expenditures per student (A

divided by B) $ $ S S S S SD. Higher Education Price Index

(1971 = 1.00) 1.379 1.468 1.567 1.689 1.856E. Expenditures per Student in Constant

(1971) Dollars (C divided by D) $ $ $ $ $ $ $F. Change from previous year: % % % % %



1976

E&G expenditures per FTE student"(28 institutions) $2447.50

E&G expenditures per FTE student(28 institutions) $2990.00

E&G expenditures per student inConstant (1971) Dollars

(27 institutions) $2168.30

55

1977 1978

FTE E 1500, from Liberal Arts Colleges II

1979 1980 1981 1982

$2825.50 $3013.50 $3037.50

$3401.50 $3450.80 $3940.00

$2317.10 $2202.20 $2332.80

Less restricted and unrestricted scholarships and fellowships.Source: Audited financial statements coded to NACUBO standards, John Minter Associates, Boulder, Colorado.

1 0 ii 10;,

%

56

Explanation of CalculationsEducational and general expenditures

are used to indicate the cost of services pro-vided to students.

InterpretationsDeclining constant dollar values. Possible

interpretations are that the institution is gain-ing efficiency because of rising enrollment orthat it has chosen to provide fewer services tothe student.

Increasing constant dollar values. Onceagain, several interpretations are possible:there has been a decrease in efficiency due toenrollment declines; the institution's revenue-raising capability is staying ahead of inflation;the institution has chosen to provide momservices, funded or unfunded, to the student;or the institution's actual inflation rate ex-ceeds the nationally computed rate.

LimitationsLarge fluctuations may indicate two

problems worthy of further analysis (the sta-tistic does not separate them): budgetary re-sponse to enrollment change may be poor, orenrollment is out of control.

Educational and general expenditures donot adequately measure total services avail-able to students.

Comparability among institutions is verylimited given the varying effect of inflationon different institutions and the range of pro-gram offerings, administrative styles, andother services offered.

Further AnalysisMuch of the extra analysis, including

Student to Faculty Rados and programs of-fered, was presented in the "NonfinancialResources" section.

106

Significance of the StatisticThe wage or price indexes of several

major components of the budget are pre-sented to facilitate analysis of expendituretrends. By comparing institutional "line-item" expenditure increases with nationaltrends, the institution may be able to gaugeits own effort in the area of cost control orcost expansion. Expenditure areas of greatestcost pressure or conservation are highlightedby this analysis.

Calculation WorksheetFiscal year ending:

Exempt Staff SalariesA. Average exempt staff salaries (admin-

istrative and institutional services) (26')B. Exempt staff salary index (1971 = 1.00)**C. Exempt staff salaries deflated by index

(A divided by B)D. Change from previous year:Books and PeriodicalsE. Total books and periodicals

expenditures (28')F. Books and periodicals index

(1971 = 1.00)G. Books and periodicals deflated by index

(E divided by F)H. Change from previous year (index is a

weighted average of subindexes for U.S.hardcover books (55%), U.S. periodicals(30%), and foreign monographs (15%)): % % % % % %

57

S

1976

S

1977

S

1978

S

1979

S

1980

S

1981

S

1982

1.268 1.327 1.389 1.486 1.598

$ $ S S S S S

$

% % % % % %

S S S S S S

1.739 1.849 1.978 2.183 2.512

$ S $ S S_ $ S

Refers to corresponding item on worksheet in chapter 3, "User Data."D. Kent Halstead, "Higher Education Prices and Price Indexes: 1980 Update," Business Officer,Washington; D.C., NACUBO, October 1980, p. 18.

1 0 'i 106

58

Fiscal year ending: 1976 1977 1978 1979 1980 1981 1982UtilitiesI. Utilities included in operation and main-

tenance of plant (24') $ $ $ $ $ $ $

J. Utilities index (1971 = 1.00)** 1.912 2.252 2.552 2.799 3.569K. Utilities deflated by index

(I divided by J) $ $ $ $ $ $ $

L, Change from previous year (index is aweighted average of subindexes: for heatingfuel (30%), commercial power (60%), andwater and sewage (10%)): % %

*Refers to corresponding item on worksheet in chapter 3, "User Data."D. Kent Halstead, "Higher Education Prices and Price Indexes: 1980 Update," Business Officer,

Washington, D.C., NACUBO, October 1980, p. 18.

Explanation of CalculationsThe annual percentages will be zero if

the institution has maintained the scope of itsoperation, has experienced inflation near thenational average, and has the same composi-tion of expenditures in each subgroup as inthe national indexes.

InterpretationsVariances from national growth rates

may be caused by either consumption shiftsor price changes at rates different from thenational average. If the institution uses lesselectricity or purchases fewer books, the cal-culated growth rate would tend to be belowzero. If, however, the institution has expe-rienced electricity rate hikes or book price in-creases above the national average, deviationfrom the national average would tend to beabove zero.

Variances from national averages shouldpartially reflect budget priorities at the insti-tution. This information should contain

109

nothing unexpected if the institution under-stands the cost pressures it faces and the ac-tions it has taken to minimize the effect ofinflation.

LimitationsIt is very difficult to separate local infla-

tion variances from consumption changes.These indexes are intended only as a

general approximation of inflation in a fewcategories of expenditures.

Interpretation of the figures is limited toamplifying current expenditure strategies andassisting forecasting. Very little can be in-ferred about the "health" of the organizationfrom these trends. They are included only toprovide another piece of financial informa-tion that may be helpful to policy makers.

Further AnalysisNACUBO's Business Officer (October

1980) contains several sets of subindexes,such as salaries for library personnel. Theinstitution may wish to refine its analysis of

one or more of these areas by breaking theexpenditures into subcategories.

Utilities may be separated into consump-tion factors and a price per unit of con-sumption factors. The national indexes as-sume constant consumption. Thus, total dol-lars spent for utilities may be less useful as abasis of analysis than separate comparisons ofconsumption and unit cost with the nationaltrends. Also, the cost per volume of libraryacquisition and the increase in total volumesacquired are separable factors and may beanalyzed in terms of volume and unit pricechanges.

1 i 0

Calculation WorksheetThe values needed to fill in the bar

graphs can be calculated on the followingworksheet.

Significance of Statistic

Major changes in the expenditure alloca-tion strategies of the institution are revealedin the following bar graphs. Most of the areaslisted are functional categories. Thus, de-

59

dines or increases in the proportion spent onany area indicate changes in institutionalpriority for that function. If the proportionspent on instruction has declined, for ex-ample, this analysis will show which areashave increased proportionately.

Fiscal year ending: 1976 1977 1978 1979 1980 1981 1982A. Instruction (13') $ $ $ $ $ $ $

B. Research (14') $ $ $ $ $ $ $

C. Public service (15') $ $ $ $ $ $ $D. Academic support (16') $ $ $ $ $ $ $E. Student services (17') $ $ $ $ $ $ $

F. Institutional support (18') $ $ $ $ $ $ $G. Operation and maintenance of plant (19') $ $ $ $ $ $ $H. Scholarships and fellowships from

unrestricted funds (20') $ $ $ $ $ $ $I. Mandatory transfers (22') $ $ $ $ $ $ $

J. Total E&G expenditures (excluding re-stricted student aid) (add A through I) $ $ $ $ $ $ $


ProportionsK.L.ro.N.0.P.Q.

R.S.

Instruction (A divided by J):Research (B divided by J):Public service (C divided by J):Academic support (D divided by J):Student services (E divided by J):Institutional support (F divided by J):Operation and maintenance of plant(G divided by J):Unrestricted student aid (H divided by J):Mandatory transfers (I divided by J):

1 1 i

1976 1977 1978 1979 1980 1981 1982

112

60

Expenditure Proportionsfor Five Years

Instruction'76 '77 '78 '79 '80 '81 '82

100%

80%

60%

40%

20%

0%

Research Public Service'76 '77 '78 '79'80 '81 '82 '76 '77 '78 '79 '80 '81 '82


100%

80%

60%

40%

20%

0%

Instruction'76 '77 '78 '79 '80 '81 '82

Ya

Research'76 '77 '78 '79 '80 '81 '82

0 0 0

Public Service'76 '77 '78 '79 '80 '81 '82

0 0 0

Academic Support

'76 '77 '78 '79 '80 '81 '82

Instructions: For each year in each category,draw a line indicating the percentage of totalexpenditures.

Student Services

'76 '77 '78 '79 '80 '81 '82

Institutional Support

'76 '77 '78 '79 '80 '81 '82111n.100%

80%

60%

40%

20%

0%

FTE 1500, from Liberal Arts Colleges 11

AcAdensic Support Student Services Institutional Support'76 '77 '78 '79 '80 '81 '82

O 0 ""


'76 '77 '78 '79 '80 '81 '82 '76 '77 '78 '79 '80 '81 '82

11 4

100%

80%

60%

40%

20%

0%

Operation and UnrestrictedMaintenance of Plant Student Aid

'76 '77 '78 '79 '80 '81 '82 '76 '77 '78 '79 '80 '81 '82100%

80%

60%

40%

20%

0% I

MandatoryTransfers

'76 '77 '78 '79 '80 '81 '82

Operation and Unrestricted MandatoryMaintenance of Plant Student Aid Transfers

'76 '77 '78 '79 '80 '81 '82 '76 '77 '78 '79 '80 '81 '82 '76 '77100%

80%

60%

40%

20%

0%

NoInformation

11 o

I

eq,...

61

Explanation of CalculationsAll expenditures and mandatory trans-

fers in the current fund, except restrictedscholarships and fellowships, are included incomputing the base. Restricted scholarships

100% and fellowships such as SEOGs were ex-cluded because of the distortion that may becaused when outside agencies provide student80%aid through the current fund.

Interpretations60% The bar graphs show how changes in the

instruction budget may be affected by budgetchanges in other areas. Changes in the In.

40% struction Proportion may be caused by addi-tional library expenditures or academic sup-port, utilities costs as part of plant operation

20% and maintenance, increased debt costs as partof mandatory transfers, or increased student

0% services expenditures.

'78 '79 '80 '81 '82

I--cilavec'?0

100%

80%

60%

40%

20%

0%

LimitationsThe "condition" of the institution is not

revealed by these graphs. They can showonly expenditure patterns during the fiveyears.

Further Analysis

The budget proportion allotted to spe-cific items such as utilities, library acquisi-tions, and financial aid administration may beanalyzed. More detailed items within an arearepresented by one of the bar graphs mayalso be charted.

Expenditure factors such as salaries orcontracted services can be analyzed to deter-mine if the institution has changed its methodof delivering services.

62

Appendix A Self-Assessment Indicators andCalculations

Financial Resources: Indicators and Calculations

A. Short-termUnrestricted Current Fund RatioCalculation: Unrestricted current fund assets

Unrestricted current fund liabilities

B. Intermediate-termAvailable Funds Ratio*Calculation: Unrestricted current fund balance

plus quasi-endowment market valueEducational and general expenditures

plus mandatory transfers (E&G + MT)C. Long-ternsEndowsnent Ratio

Calculation: Endowment market valueE&G + MT

Hidden Financial Resources (estimated only):D. Value of Marketable Land Ratio

Calculation: Value of marketable landE&G + MT

E. Financial Support from 4/f iated Organizations or Patron FoundationsCalcolation: Financial support f-f.nt affiliated organizations

or patron foundationsE&G + MT

,:rre Statistic

111

Flexibility: Indicators and CalculationsA. Debt Service to Revenue Ratio

Calculation: Debt service dueCurrent fund revenues

B. Acceptance RateCalculation: Acceptances of freshman and transfer applicants

Freshman and transfer applications

orAcceptances of freshman and transfer applicants

Inquiries

C. Tenured Faculty RatioCalculation: Number of tenured faculty

or faculty with long-term contracts(greater than five years)

FIE faculty (fall)

Nonfinancial Resources: Indicators and CalculationsA. Student Characteristics

1. Average test scores of entering freshmen2. Selectivity (same as Acceptance Rate)3. Percentage of entering students from top 20%

of high school class4. Percentage of entering students from top 40%

of high school class

B. Institutional Attraction1. Yield Rate

Calculation: New students (freshmen and transfers)Acceptances of freshmen and transfer applicants

2. Retention:

Calculation: Percentage of previous year's eligiblestudents who enroll for next class

3. Student Services Expenditures per StudentCalculation: Student services expenditures"

Total student headcount (fall)'Core Statistic

Dellated by Higher Education Price Index (HEPI): 1971..1.00

118

64

C. Academic Program1. Instruction Proportion'

Calculation: Instruction expendituresE&G + MT minus restricted fund scholarships

2. Instruction per FTE Student'Calculation: Instruction expenditures"

FTE students (fall)

D. Faculty1. Change in Average Compensation'

Calculation: Average full-time faculty. compensation "'

2. Student to Faculty Ratio'Calculation: FTE students

FTE faculty

E. StaffCalculation: Total student headcount (fall)

FTE administrative exempt staff(excluding auxiliary staff)

F. Deferred Physical Plant MaintenanceCalculation: Estimate of deferred physical plant maintenance

E&G + MT

Changes Affecting Financial Resources: Indicators and Calculations

A. Student-Derived Revenue Trends

1. Constant (1971) Dollar Net Student Revenue'Calculation: Tuition and fees minus scholarships

and fellowships from unrestricted funds"2. Constant (1971) Dollar Tuition Rate"3. Financial FTE Enrollments'

Calculation: Net student revenueTuition and fee rate per year

for a full-time student4. Tuition Discount Factor'

Calculation: Financial FTE enrollmentsFTE students

'Core Statistic"Deflated by Higher Education Price Index (HEM: 1971 - 1.00

'Deflated by Consumer Price Index (CPI): 1971 -1.00 49

B. Government-Derived Inflow ProportionCalculation: Total government-related inflows

Current fund revenuesC. Revenue Bar Graphs

Tuition and feesAppropriationsGrants and contractsGiftsEndowment incomeOther revenues

D. Contributed Services RatioCalculation: Value of contributed services

E&G + MTE. Expenditures per Student

Calculation: E&G+MT minus scholarships and fellowships from restricted funds**FTE students (fall)

F. ExpendituresUnit TrendsAverage exempt staff salariesBooks and periodicalsUtilities

G. Expenditure Bar GraphsInstructionResearchPublic serviceAcademic supportStudent servicesInstitutional supportOperation and maintenance of plantScholarships and fellowships (unrestricted only)Mandatory transfers

"Deflated by Higher Education Price Index (HEPI): 1971=1.00

1 2 o

66

Appendix B Glossary

ACADEMIC SUPPORT. Academic administrationand personnel development; audiovisualservices, computing services, course andcurriculum development, demonstrationschools, libraries, museums and galleries.(5:2)

AUXILIARY ENTERPRISES. Enterprises managedas essentially self-supporting, including resi-dence halls, food services, and bookstores.(5:2)

ASSETS (CURRENT FUND). Cash, accountsreceivable, notes receivable, investments,amounts due from other fund groups. (5:2)

CONSUMER PRICE INDEX (CPI). Change in costof typical wage-earner purchases of goodsand services expressed as a percentage ofthe cost of these same goods and servicesin the same base year. For the FinancialSelf-Assessment workbook, the base year is1971=1.00.

CONTRIBUTED SERVICES. Monetary value ofservices donated by the sponsoring relig-ious group. (5:1)

CURRENT FUND. Resources to be used for cur-rent operating purposes. (5:2)

CURRENT FUND BALANCE. Includes allocationsby operating management, budget balancesbrought forward from prior fiscal periods,and the unallocated balance. (5:2)

CURRENT FUND REVENUES. All unrestrictedgifts, grants, and other resources earnedduring the reporting period, and restrictedresources to the extent that such fundswere expended. (5:2)

DEBT SERVICE PAYMENTS. Principal, interest,and sinking fund payments. (5:4)

ENDOWMENT INCOME. Unrestricted incomefrom endowment and similar funds, re-stricted income from endowment and simi-lar funds expended for current operations,and income from funds held by othersunder irrevocable trusts. (5:2)

EXEMPT EMPLOYEE. One whose conditions ofemployment and compensation are notsubject to the provisions of the Fair LaborStandards Act as amended. Exempt em-ployees are not eligible for overtime pay-ment. According to Section 13 of the act,an exempt employee is "any employee em-ployed in a bona fide executive, admin-istrative, or professional capacity.... "'

FACULTY COMPENSATION. Salary plus benefits.(2:8)

GOVERNMENT APPROPRIATIONS. All unrestrictedamounts received or made available to aninstitution by legislative acts or local taxingauthority, and restricted amounts fromthose same sources that are expended forcurrent operations. (5:2)

GOVERNMENT GRANTS AND CONTRACT'S. All un-

restricted amounts received or made avail-able by grants and contracts from govern-ment agencies and all amounts received ormade available through restricted grantsand contracts to the extent expended forcurrent operations. (5:2)

HIGHER EDUCATION PRICE INDEX (HEPI). In-dex of goods and services purchased bycolleges and universities for their opera-tions (education and general currentoperations). HEPI includes faculty fundingand research, administration, secretarialand clerical services, fringe benefits, sup-plies and materials, equipment, utilities,books, communications, and data process-ing. In calculating the index, price changesfor the items are averaged with weightsthat represent their relative importance inthe spending of all higher education institu-tions. For the Financial Self-Assessmentworkbook, index numbers are computedon the base year 1971=1.00.

122

INDEPENDErT OPERATIONS. Expenditures andtransfers for independent endeavors thatmay enhance the primary missions of theinstitution. (5:2)

INsurtmoNAL SUPPORT. Central executive-level activities concerned with managementand long-range planning and carried out bythe governing board or chief executive,academic, or business officers; fiscal opera-tions; administrative data processing; spacemanagement, staff personnel, and records;logistical activities that provide procure-ment, safety, security, or transportation;faculty and staff support services thatare not operated as auxiliary enterprises;and community and alumni relations. (5:2)

INSTRUCTION. General academic instruction,occupational and vocational instruction,special session instruction, and communityeducation. (5:2)

LIABILITIES (CURRENT FUND). Accounts andnotes payable, accrued liabilities, deposits,amounts due to other fund groups, and de-ferred credits. (5:2)

LIBERAL ARTS COLLEGES IL Specific subset ofinstitutions, eleven public and 449 private.These institutions may be termed "single-purpose" and are primarily liberal arts andteacher preparatory; they do not awarddoctorates and offer master's degrees onlyon a limited basis.

MANDATORY TRANSFERS. Legally bindingtransfers of restricted or unrestricted fundsfrom the current funds group to otherfunds for the financing of the educationalplant; grants agreements with the federalgovernment, donors, or others to matchgifts and grants to loan and other funds.(5:2)

OPERATION AND MAINTENANCE OF PLANT. Ad-ministration, custodial services, mainte-

nance of buildings and grounds, utilities,trucking services, fire protection. Not in-cluded are expenditures from the institu-tional plant fund account. (5:2)

PRIVATE GIFTS, GRANTS, AND CONTRACTS.

Amounts from nongovernment organiza-tions and individuals. Includes all restrictedand unrestricted gifts, grants, and bequestsexpended in the current fiscal year for cur-rent operations. (5:2)

PUBLIC SERVICE. Community and cooperativeextension services, conferences and insti-tutes, public lectures, radio, and television.(5:2)

QUASI-ENDOWMENT FUNDS (FUNDS FUNCTIONING

AS ENDOWMENT). Funds that the governingboard has decided to retain and invest.(5:3) (see also 4:1)

RESEARCH. Institutes and research centers; in-dividual or project research. (5:2)

RESTRICTED FUNDS. Funds limited by donorsand government agencies to specific pur-poses, programs, departments, or schools.(5:2)

SCHOLARSHIPS AND FELLOWSHIPS. Expenditures

financed from current funds, restricted orUnrestricted, and disbursed in the form ofoutright grants to students selected by theinstitution. (5:2) (see also 2:6)

STUDENT SERVICES. Admissions office, regis-trar, counseling and career guidance, finan-cial aid administration. (5:2)

TurnoN AND FEES. All tuition and fees as-sessed against students (net of refunds) foreducational purposes. (5:2)

UNRESTRICTED FUNDS. All funds received forwhich no stipulation was made as to howthey should be spent. (5:2)

'A Glossary of Standard Terminology for PostsecondaryEducation, Boulder, Colorado, National Center forHigher Education Management Systems, 1977, p. 29.

123

Appendix C Retention of Entering Freshmen

The following graph shows how one institu-tion tracked the freshman class for the years1972 to 1978. The institution used the chartto update its five-year plan and to project en-rollments for FY84-85.

124

1972 1973 1974 1975 1976 1977 1978To sophomore year 70.1% 74.7% 74.0% 71.2% 69,3% 74.7% 74.2%To junior year 51.9% 54.3% 54.0% 52.9% 52.8% 57.2%To senior year 46.1% 48.7% 49.8% 50.8% 47.5%

1972 1973 1974 1975 197811 RIM111 111

ItII A

1

Ill111,WMI

AEI-

IN

ENI P

"%Rink:°

55%

;5%

iockJUNIR

1

11 W I 11

OWNK=SOP OM RE le ENM MEN----ERPMESMVEMEME

,-SEMI R

Courtesy Richard B. Jungkuntz, provost, Pacific Lutheran University.

125

70

,

_ P.;.?<;,441.14."4').7".01170,

r341049Zr

titAt..,- .'":.

-...:::/txt .L.14,14Wri-V i'-1,..it.-'4'-;'..V.- .7 4:7-,i+ -.;"". '

,-40t-iA,.,

;,z10',4- c

q''''''0, .4 4,14.,

1976:% returning tonext class







Freshmen Sophomores Juniors Seniors

12()

P

:

:1

I .

. 1 ,

I ,

v

. I

MR

Appendix D Development and Testingof the Workbook

An accurate and simple method of finan-cial self-analysis emerged from the process ofdeveloping the workbook. The steps outlinedbelow trace that development.

Year One

1. Formed a working task force of experts in independent collegefinancial assessment.

2. Identified through group consensus two small sets of proto-typical colleges: one with few financial problems and one withmany.

3. Through task force brainstorming, generated potential indi-cators that would separate the two types of schools.

4. Used data provided by John Minter Associates to test the in-dicators against the task force a priori assessments.

5. Redefined ambiguous indicators.6. Visited four institutions to test the indicators against admin-

istrator perceptions.7. Redefined and expanded indicators.8. Visited four more institutions as in step 6.9. Redefined and expanded indicators.

10. Published preliminary workbook.

126,

Year Two

1. Used preliminary workbook as a training tool at four semi-nars, each attended by more than 20 administrators..

2. After seminar discussions, modified indicators.

3. Visited five additional institutions to test the workbook.

4. Modified workbook, expanding the analysis to strategic finan-cial policy evaluation.

5. Rewrote text and expanded explanations of statistics.

6. In four different states held discussions, each attended by atleast six schools that had used drafts of the workbook.

7. Modified and edited text.8. Published final version.

1,29

DOCUMENT RESUME BD 198 753 Dickmeyer, Nathan ...Mid-America, Inc. Three task force members, Robert...

Documents

Transcript of DOCUMENT RESUME BD 198 753 Dickmeyer, Nathan ...Mid-America, Inc. Three task force members, Robert...