How do we Maintain Financial Wellness?
Sufficiency and deployment of the University’s resources are essential to the short and long term success of the institution. CU-Boulder has both unrestricted and restricted revenues that it relies on to cover its expenses. At any point in time, there is an ending balance, called net assets, which indicates the financial position whether positive or negative.
Of this financial position, the funds will be either restricted or unrestricted. Any funds with no externally imposed restriction on use, must be unrestricted under generally accepted accounting principles. In general, the majority of unrestricted net assets have internal restrictions/commitments, though, for capital projects, academic and research initiatives, financial aid, and other University business.
The unrestricted net assets are across thousands of operating accounts throughout the campus and result from various reasons which include planned actions, revenue surplus, cost savings, cost avoidance, and deferred investments. Individual campus departments have obligations and controls on these funds, which are often committed for specific uses. The amount of unrestricted net assets held by the CU-Boulder at the end of fiscal 2013 was $379 million, most of which is obligated. CU-Boulder on a per student capita basis is on par with other peer institutions’ level of unrestricted net assets.
In total, there is less than $50 million of one-time funds that are for a “rainy day” to support the $1.3 billion budget. These rainy day funds are not a permanent funding source to offset our on-going revenue streams, rather a modest stop-gap contingency. This represents less than one month’s payroll for the campus and is 3% of the campus total operating budget.
How do we measure financial wellness?
In order to achieve the university’s mission, there must be measurement of the sufficiency and deployment of resources. One such measure is the Composite Financial Index (CFI), which is a measure of financial health particular to institutions of higher education. The CFI was developed by Prager, Sealy & Co., LLC, KPMG LLP and BearingPoint, Inc. in partnership with higher education, and utilized across the industry, including as part of the accreditation process.
Composite Financial Index (CFI) score
CU-Boulder’s score since fiscal year 2010 has decreased from 3.59 to 2.43 in fiscal year 2014. In years 2010 to 2012, CU-Boulder has remained on par with peer average CFI scores.
CFI scores: CU-Boulder vs AAU peers FY 2010 - FY 2014
AAU peers = public members of the American Association of Universities. The AAU is a group of over 60 Research I universities; membership is by invitation only. Visit the AAU website for more information on the AAU.
Source: IPEDS financial data fiscal years 2010, 2011, and 2012. Peers included in above data are majority of AAU public universities, and exclude the University of California schools and UT-Austin. UCB fiscal year 2014 data is from unaudited supplemental financial statements.
The uniqueness of the CFI is that it incorporates four different, yet common, accounting financial ratios for one overall financial wellness measurement.
The following are the four accounting financial ratios:
Primary reserve ratio – measures financial flexibility. The primary reserve ratio is calculated by dividing the expendable net assets by total expenses. This ratio provides an indication of how long the Boulder campus could function using its expendable unrestricted and restricted net assets, excluding those restricted for capital investments. A ratio of .50 indicates funding for approximately a duration of 6 months of operations. CU-Boulder’s ratio average for the past four years is 49%.
Net operating revenue ratio – measures operating performance, and is an indication of whether the University is living within available resources. The net operating revenue ratio is calculated by operating income or loss plus net non-operating revenue divided by operating revenues plus non-operating revenues. CU-Boulder’s average for the past four years is 5.9%.
Return on net asset ratio – measures overall asset return and performance. The return on net assets ratio is calculated by the change in net assets divided by the total beginning of the year net assets. An increasing trend indicates that the University net assets are increasing; conversely, a decreasing trend indicates that net assets are decreasing. CU-Boulder has been declining annually from 11.0% in FY2010 to 4% in FY2014. Effects for inflation have not been factored into the calculation.
Viability ratio – measures ability to cover debt with available resources. The viability ratio is calculated by the expendable net assets, excluding net assets restricted for capital investments, divided by long-term debt. CU-Boulder’s average for the past four years is .80. A ratio of 1.25 or greater in general indicates that there are enough resources to satisfy debt obligations.
Last revision 01/07/15
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