An  Updated  Analysis  of  the  Financial  Statements    for  

Oakland  University  Fiscal  Years  2001-­‐2014  

     

Prepared  for  the  Oakland  University  Chapter  of  the  AAUP    By    

Rudy  Fichtenbaum  Professor  of  Economics  7300  Crestway  Rd.  

Clayton,  OH  45315-­‐9758    

(937)  620-­‐7430    

rfichtenbaum@gmail.com        

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Introduction    

This  report  provides  an  update  of  the  analysis  of  the  financial  status  of  Oakland  University  for  fiscal  years  2012  through  2014.  My  previous  reports  covered  fiscal  years  2001  through  2011.  In  most  cases,  the  data  in  the  tables  in  this  report  will  show  the  data  from  2009-­‐2014  (Supporting  data  for  2001-­‐2008  can  be  found  in  previous  reports).    However,  all  of  the  graphs  in  this  report  will  show  the  data  over  the  entire  period  from  2001-­‐2014.  The  analysis  contained  in  this  report  is  based  on  information  contained  in  the  audited  financial  statements  and  other  information  that  appears  in  the  Annual  Financial  Reports  of  the  University  as  well  as  information  from  the  Integrated  Post-­‐Secondary  Educational  Data  System  (IPEDS)  for  the  aforementioned  years.    

  Most  businesses  have  a  goal  of  earning  profit   for  stockholders.  Thus,  the  financial  statements  of  most  businesses  are  designed  to  allow  stockholders  and  others   concerned   with   profitability   a   means   to   monitor   the   performance   of   the  business  in  question.    

Universities  and  other  non-­‐profit  organizations  ostensibly  have  an  entirely  different  purpose.    Universities,  in  particular,  are  institutions  of  higher  learning  established  primarily  to  create  and  disseminate  knowledge.    Universities  receive  a  significant  portion  of  their  funding  from  donors  and  governmental  entities.    These  funds  are  often  given  with  certain  restrictions  and  conditions.    Consequently  universities  use  a  system  of  fund  accounting.  The  primary  purpose  of  fund  accounting  is  to  provide  trustees,  who  are  legally  responsible  for  running  universities,  the  information  to  monitor  the  funds  that  come  into  the  institution  and  make  sure  that  they  are  expended  for  their  intended  purpose.        

Since  the  primary  purpose  of  fund  accounting  systems  is  to  ensure  that  a  university  expends  funds  in  the  manner  they  were  intended  by  donors  or  government  entities,  it  has  been  difficult  for  faculty  to  look  at  a  University’s  financial  statements  and  get  a  true  picture  of  the  university’s  financial  health.    In  the  past,  financial  statements  for  universities  were  broken  down  into  various  fund  groups.  In  effect,  each  fund  group  had  its  own  financial  statements  and  universities  could  move  money  between  funds  making  it  difficult  to  understand  whether  universities  had  revenues  in  excess  of  expenses  or  whether  expenses  exceeded  revenues.    In  2002,  public  universities  changed  their  financial  statements  so  that  they  more  closely  resemble  those  in  for  profit  businesses.  One  might  argue  that  this  new  reporting  format  is  a  reflection  of  the  growing  corporatization  of  universities,  which  are  increasingly  being  run  more  and  more  like  for  profit  enterprises.  However,  one  of  the  benefits  of  the  new  reporting  format  is  that  it  is  now  easier  for  faculty  to  understand  the  financial  status  of  their  institutions.    

 

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Historically,  most  universities  have  had  some  sort  of  a  faculty  budget  oversight  committee  as  part  of  faculty  governance  institutions.  Many  of  the  functions  of  these  budget  oversight  committees  have  been  taken  over  by  collective  bargaining  agents  at  institutions  where  faculty  members  have  opted  to  engage  in  collective  bargaining.  However,  whether  an  institution  has  collective  bargaining  or  a  traditional  budget  oversight  committee,  faculty  at  most  institutions  focus  on  the  annual  budget  of  the  institution.    

 Often,  looking  only  at  a  university’s  budget  misleads  faculty  members.  

Budgets  are  normally  based  only  on  the  current  fund  and  since  universities  have  the  ability  to  transfer  money  from  one  fund  to  another  looking  at  the  current  fund  does  not  give  a  true  picture  of  a  university’s  finances.  Figure  1  below  shows  the  structure  of  university  or  college  funds.  

   

 Figure  1.    In  addition,  a  budget  is  just  a  financial  plan.    However,  institutions  have  no  

legal  obligation  to  spend  money  in  accordance  with  their  budget.    For  example,  a  budget  may  show  that  money  has  been  allocated  for  a  certain  number  of  faculty  positions.    However,  in  any  given  year  a  certain  number  of  faculty  members  leave  institutions  either  to  take  jobs  elsewhere  or  to  retire.  Consequently  in  any  given  year  a  certain  number  of  positions  that  are  budgeted  are  vacant.  Therefore  what  a  university  budgets  for  faculty  salaries  and  benefits  is  not  necessarily  what  they  actually  spend  on  salaries  and  benefits.  As  a  result,  some  percentage  funds  for  budgeted  positions  either  gets  spent  elsewhere  or  accumulates  and  becomes  part  of  a  university’s  net  assets.    Budgets  also  depend  on  making  projections  regarding  enrollment  and  assumptions  about  raises  and  the  general  rate  of  inflation.  Changing  

Audited  Financial  Statements  

Current  Funds  

Unrestricted  

Educa4on  &  General  

Auxiliaries  

Restricted  

Sponsored  Programs  

Restricted  Scholarships  

Other  Restricted  Gi?s  

Loan  Fund   Endowment  Fund  

Permanent  Endowment  

Quasi-­‐Endowment  

Plant  Funds  

Renewal  &  Replacement  

Plant  Expenditures  

Agency  Funds  

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any  of  these  assumptions  can  drastically  alter  a  budget.  Finally,  almost  all  budgets  are  balanced  and  this  creates  the  impression  that  colleges  spend  every  dollar  of  revenue  that  they  take  in.  This  is  far  from  true  for  most  universities.  In  general,  most  universities  will  have  balanced  budgets  but  in  most  years  they  will  also  have  revenues  that  are  in  excess  of  expenses.    

 To  get  a  true  picture  of  a  university’s  finances  one  must  look  at  the  actual  

financial  statements,  which  present  the  actual  revenues  and  expenses  of  a  university.    Evaluating  a  university’s  finances  by  looking  at  its  budget  would  be  the  equivalent  of  evaluating  the  performance  of  a  for-­‐profit  company  by  looking  at  its  business  plan.  

 In  a  for-­‐profit  business,  revenues  come  into  the  business  through  the  sale  of  

goods  and  services.    In  the  process  of  producing  goods  and  services  firms  incur  costs.    The  difference  between  revenues  and  costs  represents  the  firm’s  profit  or  loss.    This  profit  or  loss  is  one  of  the  primary  indicators  of  how  the  firm  is  performing.    Universities,  as  non-­‐profit  organizations,  take  in  revenue  in  the  form  of  tuition  dollars,  donations  and  governmental  support.    In  the  process  of  carrying  out  the  mission  of  their  institution,  universities  also  incur  expenses.    The  difference  between  the  revenues  and  expenses  is  known  as  the  change  in  net  assets  (change  in  net  position).    If  a  university’s  revenue  exceeds  its  expenses  there  is  an  increase  in  net  assets.    Conversely,  if  the  expenses  exceed  the  revenues  there  is  a  decrease  in  net  assets.  Increases  or  decreases  in  net  assets  are  one  of  the  prime  indicators  of  how  a  university  is  performing  financially.  

 Financial  data  is  reported  either  as  a  stock  (a  level)  or  flow  (a  change).  A  

stock  is  a  snapshot  taken  at  a  particular  point  in  time.  For  example,  the  amount  of  money  in  your  savings  account  is  a  stock.  Flows  are  measurements  that  tell  us  about  changes  overtime,  as  we  move  from  one  level  to  another.  Flows  always  have  a  time  dimension.  For  example,  income  is  a  flow  because  it  is  measures  the  number  of  dollars  we  receive  per  year.  

 Universities  have  three  main  financial  statements.  First  there  is  a  balance  

sheet  or  a  statement  of  net  assets  (statement  of  net  position).  Balance  sheets  have  three  main  components:  assets,  liabilities  and  net  assets.  Assets  are  things  of  value  owned  by  a  university.  Liabilities  are  claims  against  a  university  and  net  assets  are  the  difference  between  assets  and  liabilities.  Net  assets  represent  the  wealth  of  the  institution.    All  of  the  items  on  a  balance  sheet  deal  with  stock  concepts  and  represent  a  snapshot  of  the  university  at  a  point  in  time.  Thus,  the  first  part  of  this  report  will  provide  an  analysis  of  the  University’s  balance  sheet.  

   The  second  major  financial  statement  is  the  statement  of  revenues,  expenses  

and  changes  in  net  assets  (changes  in  net  position).  Another  name  for  this  statement  would  be  an  income  statement.  This  financial  statement  shows  how  a  university’s  finances  are  changing  over  a  period  of  time,  namely  a  fiscal  year  that  normally  runs  from  July  1  to  June  30  of  the  following  year.  This  statement  deals  with  flows  and  measures  how  a  university’s  revenues  and  expenses  are  changing  over  time.  Fiscal  

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years  are  always  associated  with  the  calendar  year  in  which  the  fiscal  year  ends.  So  for  example,  from  July  1,  2013  to  June  30,  2014  is  known  as  fiscal  year  2014.    

 There  is  a  relationship  between  stocks  and  flows  or  between  the  balance  

sheet  and  income  statement.  For  example,  if  revenues  are  greater  than  expenses  then  there  will  be  an  increase  in  net  assets.  This  means  that  if  you  take  the  net  assets  at  the  beginning  of  a  year  on  the  balance  sheet  and  add  the  change  in  net  assets  from  the  statement  of  revenues,  expenses  and  changes  in  net  assets  you  will  get  the  net  assets  at  the  end  of  the  year  which  are  shown  on  the  balance  sheet.  The  second  part  of  this  report  will  provide  and  analysis  of  the  University’s  statement  of  revenues,  expenses  and  changes  in  net  assets.  The  following  equation  shows  the  relationship  between  the  two  statements:    The  change  in  net  assets  =  revenue  –  expenses  =  change  in  assets  –  change  in  liabilities.    

In  2011  GASB  63  introduced  the  term  net  position  and  change  in  net  position,  which  has  now  taken  the  place  of  net  assets  and  change  in  net  assets.  The  difference  is  relatively  minor  and  like  many  institutions,  the  Oakland  University  did  not  adopt  GASB  63  until  2013.  In  this  report,  we  will  use  the  two  terms  interchangeably.  The  net  position  is  the  difference  between  (assets  +  deferred  outflows  of  resources)  minus  (liabilities  +  deferred  inflows  of  resources).  Deferred  outflows  are  consumption  of  net  assets  by  a  college  that  is  applicable  to  a  future  reporting  period.  Deferred  inflows  are  acquisition  so  of  net  assets  applicable  to  a  future  reporting  period.  

 Deferred  outflows  and  inflows  generally  involve  the  use  of  derivatives.  A  

derivative  is  a  financial  instrument  that  derives  is  value  from  some  underlying  asset.  Anytime  a  financial  asset  is  created  there  is  always  an  offsetting  liability.  The  most  common  derivative  used  in  higher  education  is  something  known  as  an  interest  rate  swap.  This  is  an  agreement  where  two  parties  one  with  a  loan  that  has  a  variable  rate  of  interest  and  the  other  with  a  loan  that  has  a  fixed  rate  of  interest  agree  to  a  series  of  payments  that  allow  them  to  swap  interest  payments.  So  the  person  with  a  variable  rate  loan  agrees  to  make  a  series  of  fixed  interest  payments  and  the  person  with  the  fixed  rate  loan  agrees  to  make  a  series  of  variable  rate  interest  payments.  

 The  third  financial  statement  is  the  statement  of  cash  flows.  Universities  use  

a  system  of  accrual  accounting,  which  means  they  book  revenues  when  they  earn  them  and  book  expenses  when  they  are  incurred.  However,  recognizing  revenue  is  not  always  the  same  as  collecting  cash.  For  example,  a  university  may  send  a  bill  to  a  student  for  tuition  but  not  immediately  collect  the  money  that  is  owed.  This  shows  up  on  a  university’s  balance  sheet  as  an  increase  in  accounts  receivable  and  is  booked  on  the  statement  of  revenues,  expenses  and  changes  in  net  assets,  as  revenue.    While  the  university  shows  an  increase  in  revenue,  it  does  not  actually  have  more  cash.  Hence  the  role  of  the  cash  flow  statement  is  to  show  the  inflows  and  outflows  of  cash.  The  third  section  of  this  report  will  provide  an  analysis  of  the  University’s  cash  flow  statement.  

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    In  providing  an  analysis  of  each  of  these  financial  statements  it  is  important  to  look  at  trends  such  as  the  increase  or  decrease  in  net  assets.  In  addition,  this  report  will  also  calculate  certain  ratios,  which  are  indicators  of  financial  performance.  There  are  a  number  of  different  types  of  ratios  that  can  be  used  to  evaluate  the  performance  of  colleges  and  universities.  There  are  revenue  and  expense  ratios,  liquidity  ratios,  solvency  ratios,  activity  ratios  and  margin  ratios.  These  ratios  can  be  used  to  look  at  the  historical  performance  of  the  institution.    In  addition,  these  ratios  can  also  be  used  to  compare  one  institution  to  another  institution,  or  to  certain  standards  that  have  been  established  in  the  field  of  higher  education.  However,  caution  should  be  exercised  when  comparing  one  institution  to  another  because  of  differences  in  reporting.      

The  purpose  of  this  report  is  to  help  educate  faculty  of  Oakland  University  about  the  financial  status  of  their  University.    The  information  provided  in  this  report  is  provided  solely  for  educational  purposes.    Every  effort  has  been  made  to  ensure  that  the  information  in  this  report  is  accurate.    Any  errors  or  misstatements  are  purely  unintentional  and  the  author  accepts  no  responsibilities  for  any  damage  that  may  result.              

   

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The  Balance  Sheet    A balance sheet (statement of financial position or statement of net assets) is a

snapshot of the university or college’s financial position on the last day of the fiscal year. Generally fiscal years begin on July 1 and end on June 30 and when a fiscal year is referred to, the number refers to the calendar year in which a particular fiscal year ends. A balance sheet has two sides and represents a balance between assets on the left side and liabilities and changes in net assets on the right side. The equation that summaries a balance sheet is Assets = Liabilities + Net Assets. The basic structure of the balance sheet is illustrated in Figure 2 below.

Figure 2.

Assets An asset is something that an institution owns that is expected to provide a benefit

in the future. Assets can be divided into two classes: real assets such as classrooms, laboratories, computers, library books and journals etc., and financial assets such as cash that can be used to make student loans and finance current operations, and investments in financial instruments such as endowments, which can be used to generate income to defray certain expenses or be liquidated during a period of a financial crisis. Assets increase as resources are obtained and decrease as assets are disposed of or used up.

A university or college’s assets can be divided into current and non-current assets. Current assets consist of assets that will be converted to cash or used up during the course of a year. The major items that comprise current assets are cash and cash equivalents, short-term investments, accounts receivable, notes receivable and inventories.

Assets   Liabili4es  &  Net  Assets  

Net  Assets  

Long-­‐Term  Debt  

Accounts  Payable  

Property,  Plant  &  Equipment  

Accounts  Recivable  

Cash  &  cash  equivalents  

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Cash and cash equivalents consist of physical cash, checking accounts and short-term investments such as certificates of deposit, government securities and money market mutual funds. Accounts receivable represent are amounts that are owed to a college or university for services provided (e.g. tuition, room and board) and are generally reported net of allowances for doubtful accounts, which are amounts the college or university expects that it is unlikely to collect. Notes receivable are amounts owed by other entities such as grants or loans receivable i.e., money that is owed to the university or college by granting agencies or for loans. Inventories at colleges and universities generally consist of publications and general merchandise.

Non-current assets consist of accounts receivable, notes receivable, long-term

investments, endowment investments and capital assets, all assets that will not be converted to cash or used up during the current year. Capital assets are recorded at historical cost (the amount you paid for the item, or the amount it cost to build the capital asset), measured net of accumulated depreciation. Depreciation is a way of allocating the cost of fixed assets over the useful life of those assets. It is an expense and therefore it reduces the net assets of a college. Whether this diminution of net assets represents a real decline in the wealth of an institution is questionable. For private companies, depreciation represents the allocation of the cost of purchasing plant and equipment. However, at universities and colleges, a significant portion of buildings and equipment are paid for by governmental appropriations or private gifts. Thus, universities and colleges have a source of funding for purchasing fixed assets that is not available to for profit businesses. Depreciation is an expense that appears on the income statement, but unlike most other expenses, it does not represent an outflow of cash from the college or university.

Table 1 shows assets and deferred outflows for the University from 2009-

2014 and Figure 3 shows assets and deferred outflows from 2001-2014.

 

 

 $-­‐      $100,000      $200,000      $300,000      $400,000      $500,000      $600,000      $700,000      $800,000      $900,000    

Thou

sand

s  

Figure  3    Total  Assets  &  Deferred  Ou7lows  

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   Table  1  

Assets  and  Deferred  Outflows  Thousands  of  $  

For  year  ending  June  30     2009   2010   2011   2012   2013   2014  ASSETS              CURRENT  ASSETS:              Cash  and  cash  equivalents    $34,483      $73,033      $32,718      $37,106      $56,815      $28,509    Restricted  cash  and  cash  equivalents            $104,818      $29,117    Accounts  receivable,  net    $9,298      $9,161      $9,878      $23,547      $9,802      $20,911    Appropriation  receivable      $9,537      $9,216      $9,229      $7,845      $8,175      $8,300    Pledges  receivable    $2,412      $2,452      $2,437      $2,998      $3,138      $2,933    Inventories    $312      $512      $856      $1,074      $696      $914    Deposits  and  prepaid  expenses    $545      $674      $764      $739      $1,134      $1,148    Student  loans  receivable,  net    $244      $257      $279      $353      $326      $383    Total  current  assets    $56,831      $95,305      $56,162      $73,661      $184,906      $92,216    NONCURRENT  ASSETS:              Endowment  investments      $40,539      $46,764      $56,877      $55,485      $61,432      $80,565    Other  long-­‐term  investments      $75,743      $87,827      $132,726      $119,982      $104,705      $134,876    Accounts  receivable,  net      $12,902      $11,663      $10,144      $8,578      $7,126      $6,386    Student  loans  receivable,  net    $1,735      $1,621      $1,491      $1,337      $1,411      $1,467    Capital  assets,  net    $242,441      $245,638      $271,045      $312,019      $352,058      $450,643    Other  assets    $1,844      $2,162      $1,947      $1,878      $1,099      $495    Total  non-­‐current  assets    $375,204      $395,675      $474,229      $499,280      $527,831      $674,433    Total  assets    $432,035      $490,979      $530,390      $572,940      $712,737      $766,649    Deferred  Outflow  or  resources    $-­‐      $7,122      $5,633      $11,699      $12,763      $12,463    Total  Assets  &  Deferred  Outflows    $432,035      $498,102      $536,024      $584,640      $725,500      $779,112      

 Figure  3  shows  that  the  total  assets  and  deferred  outflows  of  the  University  

increased  sharply  from  2001  to  2002.  Between  2002  and  2009  total  assets  and  deferred  outflows  increased  from  $336.2  million  to  $432  million,  an  average  annual  rate  of  3.6%.  Starting  in  2009,  total  assets  and  deferred  outflows  began  growing  more  rapidly  and  by  2014  reached  $779.1  million  growing  at  an  average  annual  rate  of  12.5%.    

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 Current  assets  tend  to  be  somewhat  volatile  because  of  movements  in  cash  

and  cash  equivalents.  Part  of  an  investment  strategy  may  involve  moving  assets  in  and  out  of  cash.  When  this  happens  assets  are  shifted  between  current  and  non-­‐current  assets.    Cash  holdings  of  the  University  generally  grew  between  2001  and  2008,  excluding  restricted  cash  and  cash  equivalents.  In  2004,  the  University  reclassified  restricted  cash  and  cash  equivalents  moving  them  from  current  to  non-­‐current  assets  and  restating  their  2003  holdings.  It  is  likely  that  restricted  cash  and  cash  equivalents  should  have  been  in  non-­‐current  assets  all  along  and  so  the  increase  in  current  assets  in  2002  was  probably  a  fluke  due  to  misclassification  of  restricted  cash  and  cash  equivalents.  In  2008,  there  was  a  decline  in  cash  and  cash  equivalents  and  they  remained  at  about  $34  million  in  2009.  In  2010,  there  was  a  sharp  increase  in  cash  holdings  to  $73  million.  In  the  follow  year,  cash  holdings  declined  to  $32.7  million  and  then  increased  to  $37.1  million  in  2012.    In  2013,  cash  and  cash  equivalents  jumped  to  $56.8  million  and  then  declined  to  $28.5  million  in  2014.    The  University  also  had  substantial  restricted  cash  and  cash  equivalents  in  2013  and  these  declined  in  2014.  Generally  restricted  cash  and  cash  equivalents  are  associated  with  holding  cash  obtained  from  the  sale  of  bonds  to  be  used  in  construction.    Without  the  movement  in  cash  and  cash  equivalents  current  assets  would  have  been  fairly  stable  over  the  period  from  2006  through  2014.  

 In  contrast  to  current  assets,  non-­‐current  assets  have  been  increasing.  The  

three  most  important  components  of  non-­‐current  assets  are  the  University’s  endowment,  other  long-­‐term  investments  and  the  value  of  its  capital  assets.  Between  2001  through  2004  most  of  the  increases  in  non-­‐current  assets  were  due  to  increases  in  the  value  of  capital  assets.  In  contrast,  the  increases  in  non-­‐current  assets  between  2005  and  2008  were  due  primarily  to  increases  in  investments.    

 Investments  include  cash  and  cash  equivalents,  endowment  and  other  long-­‐

term  investments.  Investments  for  the  University  rose  in  2002  and  then  dropped  by  about  7%  in  2003.  The  drop  in  2003  was  associated  with  a  drop  in  the  stock  market,  which  began  in  2000  and  continued  until  about  March  of  2003.  It  is  important  to  remember  that  FY  2003  ended  on  June  30,  2003  so  that  the  market  was  declining  for  most  of  FY  2003.  In  2004  investments  rebounded  and  increased  through  2008.    

 At  the  end  of  2007  the  stock  market  started  declining  and  this  decline  

continued  through  all  of  2008  and  into  2009.  The  market  started  increasing  July  of  2009  so  it  declined  for  all  of  FY  2009.  Therefore,  it  is  not  surprising  that  the  value  of  investments  declined  about  7%  in  2009.  In  a  previous  update,  I  noted  that  increases  in  the  market  for  the  first  half  of  2010  made  it  likely  that  the  value  of  investments  would  rebound  substantially  in  2010.  Indeed,  investments  rebounded  sharply  increasing  from  $150.8  million  in  2009  to  $207.6  million  in  2010.  Investments  continued  increasing  in  2011  reaching  $222.3  million.      

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In  2012  and  2013,  other  long-­‐term  investments  declined  dropping  to  $104.7  million  in  2013.  In  2014,  other  long  –term  investments  rebounded  reaching  an  all  time  high  of  $134.9  million.  Figure  4  shows  the  University’s  total  investments,  including  cash  and  cash  equivalents.  The  rise  in  2013  and  then  the  subsequent  decline  in  2014,  was  due  entirely  to  changes  in  cash  and  cash  equivalents.  Figure  5  shows  investments  excluding  cash  and  cash  equivalents.    

   

 

   

 $-­‐      $50,000      $100,000      $150,000      $200,000      $250,000      $300,000      $350,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

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Figure  4    Investments  

 $-­‐    

 $50,000    

 $100,000    

 $150,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

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Figure  5  Endowment  and  Other  Long-­‐Term  Investments  

Endowment  investments     Other  long-­‐term  investments    

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Table  2  and  Figure  6  show  the book value of capital assets for the University. Most of the growth in the value of capital assets comes from buildings and improvements and infrastructure. Capital assets are net of accumulated depreciation and are valued at historic costs.

Capital assets increased from 2001 to 2003 and then declined slightly until 2005.

Between 2005 and 2007 capital assets increased and then were flat for all intents and purposes through 2010. Starting in 2010 there was a significant increase in the value of capital assets, which rose from $245.6 million to $450.6 million by the end of 2014.

Table  2  Capital  Assets,  Net  Thousands  of  $  

For  year  ending  June  30     2009   2010   2011   2012   2013   2014  Land    $4,325      $4,325      $4,625      $4,625      $4,625      $4,625    Land  improvements  &  infrastructure    $44,727      $46,233      $55,912      $57,383      $59,739      $60,268    Buildings    $286,332      $291,659      $300,376      $308,802      $377,335      $395,501    Equipment    $42,879      $37,791      $36,479      $34,332      $37,528      $40,283    Library  acquisitions    $25,566      $26,249      $26,595      $26,665      $27,178      $27,603    Construction  in  progress    $15,105      $20,592      $34,616      $74,987      $50,693      $141,229    Total        $418,934      $426,850      $458,604      $506,794      $557,099      $669,508    Accumulated  depreciation:              Land  improvements  &  infrastructure    $(16,282)    $(18,345)    $(20,669)    $(23,238)    $(25,871)    $(28,556)  Buildings    $(104,477)    $(110,837)    $(117,266)    $(123,906)    $(131,503)    $(140,100)  Equipment    $(34,373)    $(29,863)    $(26,978)    $(24,853)    $(24,322)    $(26,413)  Library  acquisitions    $(21,361)    $(22,167)    $(22,646)    $(22,778)    $(23,344)    $(23,796)  Total  accumulated  depreciation    $(176,493)    $(181,212)    $(187,559)    $(194,775)    $(205,041)    $(218,865)  Total  capital  assets,  net    $242,441      $245,638      $271,045      $312,019      $352,058      $450,643      

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Figure 7 shows the major capital expenditures undertaken by the University in the years 2001-2014. These figures come from the Cash Flow statements. Over the fourteen-year period, from 2001-2014, the University spent a total of $408.9 million for the purchase of capital assets, with 232.4 million occurring between 2011-2014. The figure also shows the sources of capital funding. Almost none of the funding comes from capital gifts and grants.  

   

 $-­‐    

 $100,000    

 $200,000    

 $300,000    

 $400,000    

 $500,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

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Figure  6  Capital  Asset,  Net  

 $-­‐    

 $20,000    

 $40,000    

 $60,000    

 $80,000    

 $100,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

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Figure  7      Purchase  of  Capital  Assets  

Funded  by  the  University  

State  Appropra4ons  

Capital  Grants  &  Gi?s  

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Between 2001 and 2004 a small portion of capital funding came from state capital appropriations. Between 2005 and 2011, with the exception of a small gift or grant, almost all of the University’s capital spending was funded directly by the University, either by borrowing or through the use of reserves. In 2012 and 2013 there were significant capital grants and gifts and the state also contributed a large portion of the money spent on capital. In 2014, which was the single largest amount spent on capital during the 14 year period ($95.3 million), 100% of the funding came from the University.

   

Liabilities      

Liabilities  are  claims  on  an  institution’s  resources  (alternatively,  liabilities  are  present  obligations  to  sacrifice  resources  or  future  resources  that  an  institution  cannot  get  out  of).  Liabilities  can  also  be  divided  in  current  and  non-­‐current  liabilities.    Current  liabilities  consist  of  liabilities  that  are  due  within  a  year.  The  non-­‐current  liabilities  consist  primarily  of  capitalized  lease  obligations  and  long-­‐term  debt  obligations  that  are  due  in  more  than  one  year.    Examples  of  current  liabilities  are  accounts  payable,  deferred  revenue  and  the  current  portion  of  long-­‐term  liabilities.  Accounts  payable  represent  claims  of  other  businesses  or  institutions  for  goods  and  services.  Deferred  revenue  is  revenue,  which  has  been  received  for  services  that  will  be  supplied  at  a  future  date  i.e.,  in  the  next  fiscal  year  (such  as  collective  tuition  revenue  before  the  term  starts).  The  current  portion  of  long-­‐term  debt  is  the  amount  an  institution  expects  to  pay  during  the  current  year.  Examples  of  non-­‐current  liabilities  long-­‐term  debt,  which  consists  of  bonds,  notes  and  capital  leases  as  well  as  compensated  absences  and  post-­‐retirement  health  benefits.  Compensated  absences  are  liabilities  for  vacation  and  sick  leave.    

   Figure  8  shows  the  total  liabilities  and  deferred  inflows  for  the  University,  which  are  also  shown  in  Table  3.    Between  2001  and  2002  the  liabilities  of  the  University  increased  significantly  from  $76  million  to  $125  million.  From  2002  through  2005  liabilities  declined.    In  2006,  there  was  a  substantial  increase  in  liabilities  followed  by  a  smaller  increase  in  2007,  raising  total  liabilities  and  deferred  inflows  to  $144.1  million.  In  2008  and  again  in  2009  total  liabilities  and  deferred  inflows  declined.  In  2010,  there  was  a  sharp  increase  in  liabilities  followed  by  a  more  modest  increase  in  2011.  Over  the  two-­‐year  period,  from  2009-­‐2011,  liabilities  and  deferred  inflows  increased  from  $140.3  million  to  $180.5  million,  an  increase  of  $40.2  million.  From  2011  through  2014  total  liabilities  and  deferred  inflows  increased  from  $177  million  to  $320.3  million.    

The  current  liabilities  for  Oakland  University  have  fluctuated  and  did  not  changed  significantly  between  2001  and  2009.    However,  since  2009  current  liabilities  have  been  trending  upward.  In  2009  current  liabilities  were  $30.9  million.  Since  then  they  have  risen  every  year  and  in  2014  reached  $68.3  million.  Most  of  the  increase  is  due  to  changes  in  accounts  payable  and  accrued  expenses  and  in  2013  and  2014  there  was  also  a  significant  increase  in  deferred  revenue  and  student  fees.  

   

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Despite  the  recent  increase  in  current  liabilities,  most  of  the  movement  total  liabilities  is  explained  primarily  by  changes  in  non-­‐current  liabilities.  Between  2001  and  2002  the  long-­‐term  liabilities  of  the  University  nearly  doubled,  increasing  from  $50.3  million  to  $95.9  million,  due  largely  to  increased  borrowing.  Over  the  next  three  years  the  long-­‐term  liabilities  of  the  University  declined.  In  2006,  again  the  University  increased  its  debt,  which  explains  the  increase  in  non-­‐current  liabilities.  In  2007,  there  was  a  small  increase  in  non-­‐current  liabilities,  which  appears  to  be  due  largely  an  increase  in  deferred  revenue.    

 In  2008,  the  University  started  reporting  postemployment  benefits  as  being  

separate  from  other  long-­‐term  liabilities.  The  liability  for  post-­‐employment  benefits  has  risen  each  year  from  $1.4  million  in  2008  to  $9.4  million  in  2014,  an  average  annual  increase  of  36.7%  per  year.    Non-­‐current  liabilities  decreased  by  about  $0.5  million  in  2008  due  a  decline  in  deferred  revenue.    

 In  2009,  non-­‐current  liabilities  declined  by  about  $1.5  million  due  to  declines  

in  deferred  revenue  and  long-­‐term  liabilities,  although  some  of  these  declines  were  offset  by  an  increase  in  liabilities  related  to  postemployment  benefits.  Between  2009  and  2011,  non-­‐current  liabilities  increased  due  almost  entirely  to  an  increase  in  long-­‐term  liabilities.    The  University’s  debt  declined  about  $3.4  million  but  this  was  partially  offset  by  a  $2.2  liability  for  early  retirement.  There  was  also  a  $1.5  million  increase  in  the  liability  for  post-­‐employment  benefits.  

 In  2012  non-­‐current  liabilities  decreased  to  $134.9  million  due  to  s  decline  in  

long-­‐term  liabilities.  However,  in  2103  non-­‐current  liabilities  jumped  to  $249.8  million  due  to  increased  borrowing  and  then  fell  slightly  to  $247.1  million  in  2014.    

       

 $-­‐      $50,000      $100,000      $150,000      $200,000      $250,000      $300,000      $350,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

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Figure  8  Total  LiabiliRes  and  Deferred  Inflows  

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Table  3  Liabilities  and  Deferred  Inflows  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  LIABILITIES              CURRENT  LIABILITIES:              Accounts  payable  and  accrued  expenses    $7,365      $10,190      $15,960      $22,729      $21,447      $36,710    Accrued  payroll    $7,765      $8,015      $9,510      $9,349      $8,748      $7,895    Long-­‐term  liabilities-­‐current  portion      $3,021      $3,711      $4,535      $4,898      $6,588      $7,462    Deferred  revenue  and  student  fees    $11,544      $10,251      $9,652      $9,998      $13,711      $14,585    Deposits    $1,211      $1,382      $1,352      $1,426      $1,598      $1,676    Total  current  liabilities    $30,906      $33,550      $41,008      $48,401      $52,092      $68,328    NONCURRENT  LIABILITIES:              Deferred  revenue      $2,105      $1,363      $804      $596      $381      $115    Long-­‐term  liabilities    $104,360      $134,120      $132,051      $127,730      $241,608      $237,552    Other  postemployment  benefits    $2,995      $3,729      $4,504      $6,177      $7,818      $9,397    Total  non-­‐current  liabilities    $109,461      $139,212      $137,359      $134,504      $249,806      $247,063    Total  liabilities    $140,366      $172,762      $178,367      $182,905      $301,897      $315,391    Deferred  inflows  of  resources      $4,259      $2,161      $8,689      $4,314      $4,881    Total  Liabilities  &  Deferred  Inflows    $140,366      $177,021      $180,528      $191,594      $306,212      $320,273        

Table  4  shows  the  long-­‐term  liabilities  of  the  University.  These  long-­‐term  liabilities  consist  of  both  the  current  and  non-­‐current  portions  of  long-­‐term  liabilities.    Figure  9  shows  the  long-­‐term  debt  for  the  University  that  accounts  for  the  largest  portion  of  long-­‐term  liabilities.  The  debt  consists  of  bonds,  notes  and  capital  lease  obligations.  The  debt  is  slightly  smaller  than  the  long-­‐term  liabilities  shown  in  Table  1  because  long-­‐term  liabilities  while  including  debt  also  include  compensated  absences  and  the  Federal  portion  of  the  Perkins  loan  program.    

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Clearly,  the  University  increased  its  debt  between  2001  and  2002.    From  2002  through  2005  the  debt  of  the  University  decreased.    Then  in  2006  the  University’s  debt  increased  from  $89.1  million  to  $108.9  million.  Between  2006  and  2009  the  University  again  reduced  its  debt.  Then  in  2009  the  University  borrowed  $33.6  million  increasing  its  debt  to  $131.4  million.  In  2011,  there  was  a  modest  decrease  in  debt  and  the  University  ended  the  fiscal  year  with  $127.9  million  in  outstanding  debt.         In  2013,  the  University  received  $138.1  million  in  proceeds  from  the  issuance  of  new  debt.  However,  the  total  increase  in  debt  from  2012-­‐2013  was  $116.1  million,  so  approximately  $22  million  was  used  to  refinance  previously  existing  debt.  This  debt  was  used  primarily  to  finance  construction  of  Oak  View  Hall  and  a  new  engineering  center.  Figure  9  shows  the  debt  of  the  University.      

Table  4  Long-­‐term  Liabilities  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  Debt    $100,418      $131,361      $127,902      $124,270      $240,393      $234,923    Other  Long-­‐Term  Liabilities    $6,962      $6,470      $8,684      $8,359      $7,803      $10,091    Total  Long-­‐Term  Liabilities    $107,381      $137,831      $136,586      $132,629      $248,196      $245,014        

       

 $-­‐      $50,000      $100,000      $150,000      $200,000      $250,000      $300,000    

Thou

sand

s  

Figure  9  Total  Debt  

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Table  5  shows  the  level  of  debt  and  the  principal  and  interest  payments  associated  with  that  debt.  Principal  payments  can  fluctuate  dramatically.  For  example,  in  2004  the  University  made  principal  payments  of  $2.7  million  and  then  the  following  year  made  principal  payments  of  $34.9  million.  There  was  also  a  large  jump  in  principal  payments  in  2008  and  again  in  2013.  In  all  of  these  cases,  the  large  increase  in  principal  payments  was  due  to  a  refinancing  of  the  University’s  debt,  presumably  to  take  advantage  of  lower  interest  rates.  This  clearly  explains  the  lower  interest  payments  in  2009.  In  all  likelihood,  the  refinancing  in  2005  also  probably  lowered  interest  payments  below  what  they  would  have  been,  although  total  interest  payments  increased.  The  increase  was  probably  the  result  of  the  increased  debt  taken  on  by  the  University  in  2006.    

 In  2010  interest  payments  declined  to  $3.5  million  and  then  increased  to  $4.5  

million  in  2011.    Interest  payments  were  $4.3  million  in  2012  and  then  jumped  to  $7  million  in  2013.  This  jump  was  most  like  related  to  the  refinancing  associated  with  the  large  principal  payment.  Interest  rate  swaps  that  are  terminated  can  require  the  payment  of  a  fee  and  that  probably  explains  the  spike  in  interest  payments.  In  2014  interest  payments  were  $4.1  million.    

   

Table  5  Debt  and  Debt  Service  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  Debt    $100,418      $131,361      $127,902      $124,270      $240,393      $234,923    Principal  Paid  on  Capital  Debt    $2,857      $2,952      $3,704      $3,865      $26,157      $4,708    Interest  Paid  on  Capital  Debt    $5,450      $3,519      $4,583      $4,343      $7,049      $4,068    Total  Principal  &  Interest  Paid    $8,307      $6,470      $8,287      $8,208      $33,207      $8,776    

   

 One  way  of  assessing  the  impact  of  increased  debt  on  an  institution  is  to  look  

at  the  ratio  of  debt  to  total  revenue.  As  long  as  debt  does  not  rise  faster  than  total  revenue  then  increased  levels  of  debt  should  not  require  any  reallocation  of  resources,  other  things  remaining  equal.  Figure  10  shows  the  ratio  of  debt  to  total  revenue.  There  was  an  increase  in  debt  to  total  revenue  in  2002  and  another  in  2013.  After  the  increase  in  the  ratio  in  2002  the  ratio  stabilized,  fluctuating  up  and  down  until  2013.  The  ratio  did  decline  in  2014  but  it  remains  to  be  seen  whether  it  will  continue  to  decline  or  remain  at  a  permanently  higher  level.  

   

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Figure  11  shows  several  key  ratios  for  the  years  2001-­‐2014.    These  key  ratios  are  also  reported  in  Table  6.  First  is  the  ratio  of  current  assets  to  current  liabilities.      

 Current  assets  consist  of  unrestricted  cash  and  cash  equivalents,  inventories,  

receivables  and  pledges  due  within  a  year,  investments  that  mature  within  one  year  and  other  short-­‐term  assets.    Assets,  such  as  restricted  cash  and  cash  equivalents  and  restricted  investments,  unrestricted  investments  that  mature  in  more  than  one  year,  receivables  and  pledges  deemed  collectable  in  more  than  one  year  and  plant  and  equipment  are  non-­‐current  assets.      

 Current  liabilities  are  all  liabilities  payable  within  one  year  as  well  as  

deferred  revenues,  which  consist  primarily  of  tuition  collected  in  one  fiscal  year  that  pay  for  services  offered  in  a  subsequent  fiscal  year.  Liabilities  that  are  not  due  during  the  current  year  are  non-­‐current  liabilities.        

Table  6  Asset  to  Liability  Ratios  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  Current  ratio   1.84   2.84   1.37   1.52   3.55   1.35  Total  assets  to  total  liabilities   2.41   1.87   2.12   2.51   1.46   1.92  Long-­‐term  assets  to  debt   3.08   2.84   2.97   3.13   2.36   2.43        

0.000  0.100  0.200  0.300  0.400  0.500  0.600  0.700  0.800  0.900  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  10  RaRo  of  Debt  to  Total  Revenue  

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   Perhaps  with  the  exceptions  of  2001,  2010  and  2013  the  current  ratio  for  

Oakland  University  has  fluctuated  in  the  normal  range  which  is  somewhere  between  1.5  and  2.5.  The  spikes  in  the  current  ratios  in  the  aforementioned  years  were  due  to  temporary  increases  in  cash  holdings.  Generally  these  increases  have  been  associated  with  the  issuance  of  debt.  The  relatively  high  ratio  in  2010  was  due  to  an  increase  in  cash  resulting  from  the  issuance  of  debt  and  this  was  also  the  case  in  2013.      

 A  current  ratio  of  1.35  implies  that  the  University  has  current  assets  to  cover  

135  percent  of  its  current  liabilities.    There  is  no  exact  target  for  a  current  ratio  although  clearly  the  number  should  be  greater  than  one  and  not  much  greater  than  two.  It  should  be  noted  that  too  large  a  current  ratio  imposes  an  opportunity  cost  on  a  university.      

 Another  indicator  of  financial  health  is  the  ratio  of  fixed  assets  to  long-­‐term  

debt,  which  is  also  shown  in  Figure  11.    This  ratio  declined  from  3.39  in  2001  to  2.28  in  2002  and  then  rose  until  2005.    In  2005,  the  ratio  of  fixed  assets  to  long-­‐term  debt  was  2.48.  In  2006  the  ratio  declined  to  2.06  large  due  to  increased  borrowing.  In  2007,  the  ratio  increased  to  2.21  and  in  2008  it  was  2.22.  In  2009,  the  ratio  increased  to  2.26,  which  is  fairly  close  to  the  2002  ratio.  In  2010,  the  ratio  of  fixed  assets  to  long-­‐term  debt  dropped  to  1.78,  because  the  University  issued  more  debt  and  there  was  a  relatively  small  increase  in  the  value  of  fixed  assets.  In  2011,  the  ratio  rose  to  1.98,  reflecting  the  increase  in  fixed  assets  and  a  decline  in  debt.  In  2012  the  ratio  increased  to  2.51  and  then  fell  dramatically  to  1.46  in  2013  before  rebounding  a  little  to  1.92  in  2014.  

 

0.00  0.50  1.00  1.50  2.00  2.50  3.00  3.50  4.00  

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Figure  11    RaRos  of  Assets  to  LiabiliRes  

Current  ra4o  

Ra4o  of  Fixed  Assets  to  Long-­‐Term  Debt  Ra4o  of  Total  Assets  to  Total  Liabili4es  

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Finally,  Figure  11  also  shows  the  ratio  of  total  assets  to  total  liabilities.    This  ratio  declined  from  3.52  to  2.68  between  2001  and  2002.  Between  2002  and  2005  the  ratio  increased  reaching  approximately  3.13  in  2005.  In  2006,  the  ratio  of  assets  to  liabilities  declined  reaching  2.90.  Between  2006  and  2009  the  ratio  rose  reaching  3.08  by  the  end  of  2009.  The  ratio  fell  to  2.81  in  2010  and  then  rose  to  2.97  in  2011.  The  ratio  of  assets  to  liabilities  increased  in  2012  and  then  fell  in  2013  but  rebounded  to  2.43  by  the  end  of  2014.  

 Total  Net  Assets  

 In  for  profit  businesses,  the  difference  between  assets  and  liabilities  is  

referred  to  as  owner’s  equity  or  stockholder’s  equity.    In  theory,  if  a  business  were  to  sell  off  all  of  its  assets  and  pay  off  all  claims  against  the  business,  the  amount  remaining  would  be  the  owner’s  claims  on  the  business’s  resources.    In  a  non-­‐profit  organization,  the  difference  between  assets  and  liabilities  are  referred  to  as  net  assets.  Since  net  assets  are  the  difference  between  assets  and  liabilities,  they  represent  the  wealth  of  an  institution.    Therefore,  net  assets  are  an  important  indicator  of  the  financial  health.  In  the  past,  these  net  assets  were  referred  to  as  fund  balances.      There  are  three  general  categories  of  net  assets:  

1. Net  Assets  Invested  in  Capital  Assets  2. Restricted  Net  Assets  (these  are  often  broken  down  into  expendable  and  

non-­‐expendable  net  assets;  see  below  for  a  discussion).    3. Unrestricted  Net  Assets  

    Net  assets  represent  the  net  accumulation  of  a  university’s  assets  over  a  period  of  time.    Large  portions  of  these  net  assets  consist  of  the  value  of  land,  buildings,  books  and  journals  and  equipment  owned  by  the  university  or  college.    Universities  and  colleges  are  required  to  show  accumulated  depreciation  on  their  balance  sheets  for  certain  real  assets  such  as  buildings  and  some  equipment.    An  increase  in  net  assets  means  that  a  university  has  increased  its  wealth  and  conversely  a  decrease  in  net  assets  implies  that  a  university’s  wealth  has  decreased.    Figure  9  shows  the  growth  of  total  net  assets  from  2001  through  2011.    

Wealth  can  be  divided  into  two  categories:  financial  net  assets  or  tangible  net  assets.  Financial  assets  are  pieces  of  paper  that  represent  ownership  or  claims  on  tangible  assets  outside  of  the  university.  Examples  of  tangible  assets  are  the  land,  buildings,  equipment  and  library  books  own  by  a  university  or  college.  A  university  or  college’s  wealth  can  increase  either  because  it  has  more  real  assets  or  because  it  has  more  financial  assets.  In  many  cases,  the  purchase  of  tangible  assets  is  financed  partially  by  state  capital  appropriations  or  by  gifts.  An  increase  in  state  capital  appropriations  or  gifts  for  capital  increases  the  wealth  of  an  institution.  However,  the  capital  funds  universities  and  colleges  receive  from  the  state  or  private  donors  are  generally  restricted  and  cannot  be  used  for  operations  i.e.,  paying  salaries  and  benefits.    

 

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Table  7  Net  Assets  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  Invested  in  capital  assets,  net  of  related  debt    $142,649      $145,976      $151,829      $193,687      $210,637      $236,419    Restricted  nonexpendable    $15,662      $16,836      $18,057      $18,726      $19,735      $23,430    Restricted  expendable    $38,699      $36,903      $39,818      $35,302      $41,061      $44,791    Unrestricted    $94,659      $121,366      $145,793      $145,330      $147,855      $154,199    Total  Net  Position    $291,669      $321,081      $355,495      $393,046      $419,288      $458,839      

In  addition,  to  these  tangible  assets,  universities  and  colleges  also  own  financial  assets  such  as  stocks  and  bonds,  CDs  and  mutual  funds.    Finally,  universities  also  generally  hold  small  amounts  of  cash  and  money  in  checking  and  savings  accounts.  

 The  net  assets  of  the  University  are  also  shown  in  Table  7  and  in  Figure  12.    

In  the  past,  these  net  assets  were  referred  to  as  fund  balances.    There  has  been  a  significant  increase  in  the  net  assets  of  the  University.  Net  assets  increased  from  $192.4  million  in  2001  to  $458.8  million  in  2014,  an  average  annual  increase  of  6.9%.  

   If  an  increase  in  total  net  assets  is  exclusively  due  to  increases  in  the  value  of  

land,  buildings  and  equipment,  the  increase  in  wealth  while  real,  does  not  give  a  university  or  college  added  flexibility  with  respect  to  operations.  Once  a  university  or  college  invests  money  in  its  physical  plant  it  is  unusual  for  it  to  sell  that  asset.  If  a  university  or  college  changes  its  priorities  and  accordingly  wishes  to  change  its  asset  allocation  it  would  most  likely  reallocate  its  non-­‐plant  assets.    Thus,  liquid  net  assets  also  are  an  indication  of  how  well  a  university  or  college  can  react  to  unforeseen  financial  emergencies.    Moreover,  the  rate  of  increase  in  liquid  net  assets  reflect  certain  spending  priorities  at  an  institution.  The  term  liquid  refers  to  the  ease  with  which  an  asset  can  be  converted  into  cash.        

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   Figure  13  shows  the  University’s  net  assets  excluding  investment  in  plant  i.e.,  

liquid  net  assets.  In  2001,  Oakland  University  had  liquid  net  assets  of  $56.2  million.  Liquid  net  assets  increased  between  slightly  in  2002  and  2003  and  then  increased  more  rapidly  in  through  2008.  By  the  end  of  2008,  Oakland  University  had  liquid  net  assets  of  $148.8  million.  Between  2008  and  2009  liquid  net  assets  increase  by  only  $252,529  so  that  liquid  assets  remained  essentially  flat.  In  2010  and  2011  liquid  net  assets  were  up  sharply,  increasing  from  $149  million  at  the  end  of  2009  to  $203.7,  by  the  end  of  FY  2011.  In  2012  there  was  a  small  decrease  in  liquid  net  assets  and  then  liquid  net  assets  increased  in  the  next  two  years,  ending  2014  at  $222.4  million.  Since  2001  liquid  net  assets  have  increased  at  an  average  annual  rate  of  11.2%.  

   

 

 $-­‐    

 $100,000    

 $200,000    

 $300,000    

 $400,000    

 $500,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  12  Net  Assets  

 $-­‐      $50,000      $100,000      $150,000      $200,000      $250,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  13    Liquid  Net  Assets  

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   Restricted  and  Unrestricted  Net  Assets       Restricted  net  assets  are  assets  net  of  related  liabilities  held  by  the  University  that  are  designated  for  specific  purposes  by  external  entities,  either  government  agencies  or  private  donors.    Unrestricted  net  assets  are  funds  that  can  be  spent  at  the  discretion  of  the  institution.    Clearly,  unrestricted  net  assets  give  universities  more  flexibility  than  restricted  net  assets.    However,  one  should  not  assume  that  just  because  an  asset  is  restricted  that  it  cannot  be  used  for  reallocation.    For  example,  a  university  may  be  spending  a  significant  amount  of  unrestricted  funds  on  scholarships  and  then  replace  that  funding  with  endowed  scholarships.  In  this  case,  there  would  be  no  change  in  unrestricted  funds  but  there  would  be  an  increase  in  restricted  funds.    However,  the  unrestricted  funds  that  were  being  used  for  scholarships  have  now  been  freed  up  and  are  available  for  reallocation.        

Figure  14  shows  the  net  assets  divided  into  restricted  and  unrestricted  funds.        From  2001  to  2005  unrestricted  net  assets  increased  from  $35.9  million  to  $67.8  million,  an  increase  of  89  percent.  Then  between  2005  and  2008,  unrestricted  net  assets  increased  $34.6  million,  reaching  a  total  of  $102.3  million,  an  increase  of  51  percent.  In  2009,  unrestricted  net  assets  declined  to  $94.6  million.  Then  in  2010  unrestricted  net  assets  increased  to  $121.3  million  and  in  2011  they  reached  $145.8  million.  In  2012,  there  was  a  slight  decrease  in  unrestricted  net  assets  but  by  the  end  of  2014  unrestricted  net  assets  had  reached  $154.2  million.  

   

       

 $-­‐    

 $50,000    

 $100,000    

 $150,000    

 $200,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  14    Restricted  &  Unrestricted  Net  Assets  

Restricted     Unrestricted  

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An  institution  can  use  unrestricted  assets  for  any  lawful  purpose.    Many  universities,  including  Oakland  University,  report  that  the  Board  of  Trustees  or  management  has  designated  most  unrestricted  net  assets  for  specific  purposes.  Some  of  these  designations  may  result  from  funds  being  collected  by  special  fees.  Other  designations  simply  reflect  the  strategic  goals  of  decision  makers  at  an  institution.  Whether  a  designation  is  associated  with  a  special  fee  or  not,  all  designations  are  always  a  matter  of  Board  or  administrative  policy  and  therefore  subject  to  change.  Designations  reflect  the  priorities  of  Board  members  or  administrators.    Table  8  shows  board  designated  unrestricted  funds.    

 The  single  largest  designation  for  unrestricted  net  assets  is  for  capital  

projects  and  repair  reserves.  Between  2001  and  2014,  unrestricted  net  assets,  with  this  designation,  have  increased  from  $7.4  million  to  $54.3  million,  an  average  annual  increase  of  16.5%.  The  next  largest  category  is  funds  designated  for  departmental  use,  which  increased  from  $20  million  to  $28.9  million  in  2014.  Funds  designated  to  function  as  endowment  declined  to  $17.9  million  by  the  end  of  2014.  Interestingly,  in  2011  this  category  of  designated  funds  was  the  second  largest  and  now  it  is  the  fourth  largest.  It  is  also  worthwhile  to  note  that  in  2012  there  was  a  significant  decline  in  institutional  reserves  and  in  the  following  year  a  decline  in  funds  functioning  as  endowment  and  an  increase  in  institutional  reserves.    Although  it  is  impossible  to  tell  from  simply  looking  at  the  designations  whether  money  is  transferred  back  and  forth  between  categories  it  is  certainly  a  possibility.  The  bottom  line  however,  is  that  all  of  these  funds  are  unrestricted.    

Table  8  Designated  Net  Assets  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  

Auxiliary  Enterprises    $3,717      $5,325      $8,337      $9,457      $3,728      $3,222    Capital  projects  &  repair  reserves    $27,869      $36,902      $40,368      $57,729      $54,361      $54,270    Funds  designated  for  departmental  use    $20,000      $20,462      $24,539      $25,264      $29,282      $28,926    Funds  functioning  as  endowment    $18,794      $22,021      $26,907      $26,545      $16,078      $17,929    Institutional  reserves    $6,010      $17,004      $27,286      $18,808      $23,619      $27,705    Retirement  and  insurance  reserves    $(1,367)    $(2,009)    $(3,006)    $(4,960)    $6,280      $8,019    Encumbrances  and  carry  forwards    $5,241      $8,490      $9,053      $9,016      $11,178      $12,765    Other  unrestricted    $14,395      $13,171      $12,309      $3,471      $3,329      $1,363    Total  unrestricted    $94,659      $121,366      $145,793      $145,330      $147,855      $154,199      

     

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   There  is  nothing  inherently  wrong  with  designating  unrestricted  funds;  

however,  faculty  may  believe  that  designating  fewer  funds  for  a  given  purpose  is  a  better  use  of  resources.  The  point  that  faculty  need  to  understand  is  that  current  policies  with  respect  to  unrestricted  net  assets  reflect  the  priorities  of  the  governing  board  and/or  management  and  may  not  reflect  the  priorities  of  faculty.    While  faculty  cannot  collectively  bargain  over  the  specific  designation  of  unrestricted  net  assets,  collective  bargaining  can  cause  the  governing  board  or  management  to  change  its  priorities  resulting  in  the  reallocation  of  these  funds.  

 Expendable  and  Non-­‐Expendable  Net  Assets:       In  addition  to  dividing  net  assets  between  restricted  and  unrestricted,  net  assets  can  also  be  categorized  as  expendable  or  non-­‐expendable.    Expendable  net  assets  consist  of  assets  that  legally  could  be  used  for  operations  or  plant  expenditures.    Non-­‐expendable  net  assets  are  funds  that  would  not  be  spent  for  operations,  for  example  the  endowment  fund.         Quasi-­‐endowments  are  funds  that  the  Board  of  Trustees  set  aside  to  be  used  in  the  form  of  an  endowment.    These  funds  along  with  unrestricted  plant  funds  are  generally  accumulated  by  transferring  funds  from  current  funds.    As  mentioned  previously,  these  funds  are  available  for  the  University  to  spend  for  any  lawful  purpose,  which  means  that  the  University  is  not  obligated  to  treat  funds  in  a  quasi-­‐endowment  as  if  they  were  an  endowment  nor  are  they  obligated  to  spend  designated  plant  funds  on  capital  projects.      

Table  8  shows  the  University’s  quasi-­‐endowment  listed  under  the  category  of  “Funds  functioning  as  endowment.”  In  2009  Oakland  University  had  $18.8  million  in  quasi-­‐endowments.  In  2011,  Oakland’s  quasi-­‐endowment  reached  $26.9  million.  By  the  end  of  2014,  the  value  of  funds  designated  in  this  category  declined  to  $17.9  million.  This  decline  more  likely  reflects  changes  in  priorities  than  returns  on  investment.         When  it  comes  to  endowment,  Oakland  University  like  many  state  universities  had  its  endowment  split.  The  University  held  some  of  the  endowment  and  some  was  held  in  a  private  not-­‐for-­‐profit  foundation.  In  2006,  the  Foundation  transferred  nearly  all  of  its  assets  and  liabilities,  about  $8.7  to  the  University,  so  that  the  University  now  holds  the  entire  endowment.  This  accounts  for  some  of  the  increase  in  investment  held  by  the  University  in  2006.    In  2008,  the  University  had  an  endowment  of  $50.5  million.  The  value  of  the  endowment  declined  by  about  $10  million  in  2009  leaving  it  at  $40.5  million.  In  2010,  the  endowment  increased  to  $46.7  million  and  then  grew  to  $56.9  million  in  2011.  In  2012  the  value  of  the  endowment  fell  slightly  to  $55.5  million  and  then  increased  in  the  following  two  years  having  value  of  $80.6  million  at  the  end  of  2014.    

 

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   Table  9  shows  expendable  and  non-­‐expendable  net  assets.  Both  expendable  

and  non-­‐expendable  net  assets  at  the  University  have  generally  trended  upward  over  the  period  from  2001  to  2014.  The  increase  in  expendable  net  assets  flattened  out  in  2009  and  then  increased  dramatically  in  both  2010  and  2011.  Figure  15  shows  expendable  and  non-­‐expendable  net  assets.    

 The  jump  in  non-­‐expendable  net  assets  in  2006  was  due  to  the  transfer  of  

funds  from  the  University’s  foundation  to  the  University.  Non-­‐expendable  net  assets,  which  were  flat  before  2006,  increased  from  11.6  million  to  15.6  million  between  2006  and  2009.    In  2010  and  2011,  non-­‐expendable  net  assets  increased  to  $16.8  million  and  $18.1  million  respectively.  Non-­‐expendable  net  assets  increased  in  2012,  2013  and  2014.  By  the  end  of  2014  they  stood  at  $23.4  million.  

 Expendable  net  assets  have  increased  from  $51.4  million  to  $133.8  million  

between  2001  and  2008.  In  2009,  expendable  net  assets  decreased  by  nearly  a  half  million  dollars  ending  up  at  $133.4  million.  In  2010,  expendable  net  assets  jumped  to  $158.3  million  and  then  to  $185.6  million  in  2011.  In  2012  expendable  net  assets  decreased  ending  the  year  at  $180.6  million.  In  the  following  two  years  expendable  net  assets  increased  and  at  the  end  of  2014  were  $199  million.    

 

 $-­‐    

 $50,000    

 $100,000    

 $150,000    

 $200,000    

 $250,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  15    Expendable  &  Non-­‐Expendable  Net  Assets  

Expendable   Non  Expendable  

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Table  9  also  shows  two  ratios  that  are  commonly  calculated  as  indicators  of  financial  health.    The  first  is  known  as  the  viability  ratio,  which  is  the  ratio  of  expendable  net  assets  to  long-­‐term  debt.    After  declining  sharply  between  2001  and  2002,  the  viability  ratio  rose  between  2002  and  2005.  The  viability  ratio  declined  by  a  moderate  amount  in  2006  and  then  rose  in  2007,  2008  and  2009.  In  2010,  the  viability  ratio  dropped  to  1.2,  despite  the  rise  in  expendable  net  assets.  The  main  reason  for  this  decline  was  the  increase  in  the  University’s  debt.  In  2011,  the  viability  ratio  increased  to  1.45.    In  2012  the  viability  ratio  remained  at  1.45  and  then  dropped  significantly  to  0.79  in  2013  before  rising  to  0.85  in  2014.    

 The  main  reason  for  the  fall  in  the  viability  ratio  in  2013  was  the  huge  

increase  in  debt.  A  viability  ratio  of  0.85  means  the  University  had  sufficient  expendable  net  assets  to  pay  85%  percent  of  its  debt.    This  viability  ratio  would  be  characterized  as  being  neither  high  nor  low.  The  changes  in  Oakland  University’s  viability  ratio  can  also  be  seen  in  Figure  16.      

   

Table  9  Expendable  and  Non-­‐Expendable  Net  Assets  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014                Expendable  Net  Assets    $133,358      $158,269      $185,610      $180,632      $188,916      $198,990    Non-­‐Expendable  Net  Assets    $15,662      $16,836      $18,057      $18,726      $19,735      $23,430                  Liquid  Assets    $149,020      $175,105      $203,667      $199,358      $208,651      $222,420                  Debt    $100,418      $131,361      $127,902      $124,270      $240,393      $234,923    Operating  Expenses  &  interest  payments    $209,715      $227,545      $235,198      $248,231      $263,961      $280,737                  Ratios:              Viability  Ratio   1.33   1.20   1.45   1.45   0.79   0.85  Primary  Reserve  Ratio   0.64   0.70   0.79   0.73   0.72   0.71    

   

 

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   The  second  ratio  presented  in  Table  9  is  the  primary  reserve  ratio,  which  

measures  the  ratio  of  expendable  net  assets  to  operating  expenses.    The  primary  reserve  ratio  is  calculated  by  dividing  expendable  net  assets  by  the  sum  of  operating  expenses  and  interest  payments  on  long-­‐term  debt.      

 The  primary  reserve  ratio  was  flat  between  2001  and  2003  and  then  rose  

sharply  in  2004,  2005  and  2006.  In  2007  and  2008  the  primary  reserve  ratio  continued  rising,  albeit  at  a  slower  rate.    In  2009,  the  primary  reserve  ratio  declined  to  0.64.  In  2010  and  2011  the  primary  reserve  ratio  increased  reaching  0.79.    Since  2011,  the  primary  reserve  ratio  has  trended  down  slightly  and  ending  2014  at  0.71.    

 A  primary  reserve  ratio  of  0.71  implies  that  the  University  has  enough  

expendable  net  assets  to  meet  71  %  of  its  operating  expenses  or  enough  reserves  to  operate  for  about  8.5  months.    So  the  decline  in  the  primary  reserve  ratio  from  0.79  to  0.71  means  those  reserves  have  declined  from  9  months  to  8.5  months,  a  relatively  small  decline.  Figure  17  shows  the  changes  in  the  primary  reserve  ratio.      

   

0.00  0.20  0.40  0.60  0.80  1.00  1.20  1.40  1.60  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  16    Viability  RaRo  

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In  summary,  in  2011  Oakland  University  had  total  net  assets  (net  position)  of  $458.8  million  with  $222.4  million  in  liquid  assets.    These  liquid  assets  were  divided  between  $199  million  in  expendable  funds  and  $23.4  million  in  non-­‐expendable  funds.    In  general,  an  analysis  of  the  University’s  Statement  of  Net  Assets  suggests  that  between  2011  and  2014  the  University’s  balance  sheet  has  weakened  but  is  still  fairly  strong.  

     

0.00  0.10  0.20  0.30  0.40  0.50  0.60  0.70  0.80  0.90  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  17    Primary  Reserve  RaRo  

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 The  Income  Statement  

   The  second  major  financial  statement  is  the  statement  of  revenues,  expenses  

and  changes  in  net  assets  or  the  statement  of  activities.  This  financial  statement  shows  how  the  a  college  or  university’s  finances  are  changing  over  a  period  of  time,  namely  a  fiscal  year  that  normally  runs  from  July  1  to  June  30  of  the  following  year.  Again,  fiscal  years  are  always  associated  with  the  calendar  year  in  which  the  fiscal  year  ends.  So  for  example,  from  July  1,  2013  to  June  30,  2014  is  known  as  fiscal  year  2014.  This  statement  deals  with  flows  and  measures  how  the  college  or  university’s  revenues  and  expenses  are  changing  over  time.    Figure  18  shows  the  basic  structure  of  the  statement  of  revenues,  expenses  and  changes  in  net  assets.  

 

 Figure  18.    There are two ways of keeping track of revenues and expenses. The cash method

is the one most of us are familiar with. Using the cash method if a paycheck were deposited in a person’s checking account on January1, 2014 for work done in December of 2013, it would have been considered income for 2014. Similarly if a person purchased a good or service and paid for it in December 23, 2013 but the good or service delivered on January 5, 2014 it would have been considered an expense incurred in 2013.

Opera4ng  Revenues  

Opera4ng  Expenses  

Opera4ng  Loss  

Non-­‐opera4ng  revneues  and  expenses  

Income  (loss)    before  other  revenue  

Other  Revenue  

Change  in  Net  Assets    

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Most businesses, including universities, account for revenues and expenses, using the accrual method of accounting. This means they book revenues and expenses in the year the good or service is delivered, which may differ from the year when cash is received. For example, a paycheck received on January 1, 2014 for work performed in December of 2013 would count as revenue in 2013. Similarly, the expense paid for in 2013 for a service delivered in 2014 would count as an expense in 2014, because that is when the good or service was delivered. Accrual accounting is used because it provides a more accurate picture of a university’s financial situation.

Revenue is the inflow of resources to a university for the services it provides.

Revenues at public universities are divided into “operating revenues” and “non-operating” revenues. Operating revenues come primarily from student tuition and fees. Other sources of operating revenues are grants and contracts, sales, and auxiliaries. Sales occur when a university provides some sort of a service to the community and charges for offering that service. Auxiliaries are operations that generate revenue that are unrelated to the core mission of a university such as parking, intercollegiate athletics, running a student union, food service or running a bookstore.

Non-operating revenues include state appropriations, gifts and investment income.

Recently, GASB has started counting Pell Grants as non-operating revenue, so at a number of institutions it appears that operating revenue from Federal grants declined. However, this reclassification has no effect on a university’s bottom line; it simply involves moving a portion of federal grants and contracts to another section of the income statement (Statement of Revenues, Expenses and Change in Net Position).

When looking at investment income great care must be taken. Investment income

includes interest and dividends but it also includes capital gains and losses. Investments are valued at “fair market” value, which means when stock or bond prices go up the value of an institution’s investments go up and when stock or bond prices go down the value of an institution’s investments go down. In most cases, large swings in the value of investments are due to unrealized gains or losses, meaning that they are paper gains or losses. For that reason, when calculating “net income” for universities many bond rating services subtract the value of investment income and add 4% of the value of investments taken over a three-year rolling period. These paper gains or losses are often quite large, but they do not give us any insight into the financial operations of an institution.

Expenses for the most part represent an outflow of resources from a university (costs incurred). There are operating and non-operating expenses. Operating expenses include instructional expenses, expenses for public service, administrative services such as academic support and institutional support, plant operations and maintenance, scholarships and fellowships, expenses for auxiliary operations and depreciation. Operating expenses can be listed by functional categories such as those discussed above or they can be listed as natural categories such as wages and benefits or purchases of goods and services. It is often the case that the “natural classification,” which contains personnel costs, are not reported in the main financial statements, but are reported in the notes to the financial statements. Non-operating expenses consist primarily of interest paid on debt.

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The difference between operating revenues and operating expenses is known as the operating loss. In publicly funded or assisted colleges the difference between operating revenues and operating expenses will always be negative. This is because public institutions of higher education rely on state appropriations and Pell grants, which are not counted as part of operating revenue. This is simply an accounting quirk. If an administrator claims that a university is running an operating loss, faculty members should be aware of the fact that virtually all public institutions run operating losses and these losses, in and of themselves, are meaningless. The difference between non-operating revenues and non-operating expenses is known as net non-operating revenues. The sum of operating losses and net non-operating revenues is known as income (loss) before other revenue and can be thought of as “net income.” Net income can be an important indicator of how well a university is performing financially. However, there are three other major sources of revenue for universities. These are capital appropriations, capital grants and gifts and additions to permanent endowments. These sources of revenue are restricted and either the corpus (principal) cannot be spent or the funds are earmarked specifically for capital projects and as such cannot be used to support salary and benefits directly. Nevertheless, when colleges receive capital appropriations and gifts, it frees up funds generated through operations which otherwise would have to be used to support capital projects. Therefore, funding for capital projects, whether by state appropriation or by gift, is an important source of revenue.

Unfortunately, capital appropriations and gifts tend to be lumpy (high in some years, very small in others) and so it may be difficult to count on them as part of a regular revenue stream. However, most universities have a fairly good idea of a certain minimum level of increases in their permanent endowment as well as capital appropriations and gifts and can factor these revenues into their spending plans. The sum of Income (losses) before other revenue (“net income”) along with capital appropriations and gifts and increases to permanent endowment is equal to the increase or decrease in net assets. The change in net assets is in effect the bottom line for a college in a given year. If there is an increase in net assets the flow of revenue into the university has been greater than expenses and if there is a decrease in net assets the university has experienced a loss. A final issue that demands our attention in trying to understand revenues and expenses is the treatment of non-cash expenses such as depreciation. Historically (pre GASB-34), universities did not account for depreciation of fixed assets. Therefore, at the end of a fiscal year if revenues and other additions exceeded expenditures, universities experienced an increase in “fund balances.” An increase in fund balances was the equivalent to an increase in net assets except that net assets also account for depreciation.

When colleges or universities purchase a fixed asset that will be used over a long period of time, the amount of money they spend on construction is not considered an expense on the income statement. What universities do is to break up the money they

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spend on construction and renovation by allocating that expenditure over a fixed period of time. The amount of time depends on the particular type of asset being purchased. The expenditure on a building is typically allocated as an expense over a 30-year period. The allocation of this expenditure over a period of time is known as depreciation. Thus, depreciation is a way of allocating the cost of fixed assets over the useful life of those assets. It is an expense and therefore it reduces the net assets of a university.

Each year when a college or university calculates the value of its net assets

invested in plant and equipment is subtracts the depreciation for that year. The sum of all the depreciation that has been subtracted is known as accumulated depreciation. Often people have the impression that depreciation is a way of funding future investments i.e., that accumulated depreciation somehow represents a savings account or reserves for future investments and the use the term “funding depreciation.” There is no such thing as funding depreciation. It is the case, that colleges and universities can set aside unrestricted funds that are designated for future investment in plant and equipment but this has nothing to do with depreciation per se.

To pay for new investments for-profit businesses, use retained earnings (reserves

accumulated from past profits), issue new stock to shareholders or borrowing by selling bonds. Like colleges and universities when they put up a new building there is a large expenditure of cash but again since the fixed asset is going to last a long period of time this large outlay of cash is not considered an expense. As is the case with a college or university, the business divides this expenditure over the useful life of the asset by depreciating the asset. Thus for a business depreciation is an expense, which reduces its net income. Since there is a relationship between expenses on the income statement and liabilities on the balance sheet, whenever expenses go up there will be an increase in liabilities and hence a decline in net assets.

However, in the case of a university, whether this diminution of net assets

represents a real decline in the wealth of an institution, in the same way as it represents a decline in wealth in a for-profit company, is questionable. The main difference between the way capital is financed in universities and in for-profit businesses is that universities receive a portion of the cost of purchasing capital assets from state capital appropriations and from private gifts. In that sense, one could argue that depreciation overstates the cost of capital assets for universities in comparison to for-profit businesses.

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Other non-cash expenses can also distort the actual health of an institution. In a for profit business it is more important that any post-retirement benefits be funded by assets. Post-retirement benefits are a liability because a business or institution has promised to pay these benefits in the future. As long as the benefits are not too large relative to overall expenses and the institution or business continues to exist it can meet its obligations from current expenses. This is a pay as you go situation. However, if a business or institution were to go bankrupt having not set aside sufficient assets to meet future claims (liabilities) then retirees would loses some or all of their retirement benefits. However, no public institutions of higher education have gone bankrupt since they started offering post retirement benefits and many have post-retirement benefits that are totally unfunded i.e., no assets have been set aside to meet future obligations. Forcing public institutions to abandon pay as you go is simply a pretense for cutting public pensions and post retirement health benefits.

 Total Revenue and Total Expenses  

Table 10 shows the consolidated position of the University for the years 2009-2014. Figure 19 shows total revenue and total expenses for the University. (The lower end of the graph has been scaled to start at $150 million to make it easier to see the distinct lines in the graph). Total revenue has risen every year, except for 2003 and 2005. Total expenses increased every year except 2004. In general total revenues exceed total expenses.

 

           

 $150,000    

 $200,000    

 $250,000    

 $300,000    

 $350,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  Th

ousand

s  

Figure  19  Total  Revenue  and  Total  Expenses  

Total  Revenue   Total  Expenses  

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Revenue    

Revenues  for  Oakland  University  are  shown  in  Table  10.  In  2001  total  operating  revenues  were  $91.7  million  and  in  2014  they  were  $212.2  million,  an  average  annual  increase  of  6.7%.  The  most  important  source  of  operating  revenue  is  tuition  and  fees.  The  tuition  and  fee  shown  in  Table  10  are  net  of  scholarships.  In  2001  tuition  was  $52.1  million  and  in  2014  it  had  risen  to  $165.8  million,  an  average  annual  increase  of  9.3%.        

Under  GASB  34  &  35  state  appropriations  are  not  treated  as  operating  revenue,  although  clearly  they  are  one  of  the  most  important  sources  of  revenue  to  fund  the  operations  of  a  state  university.  In  2001,  state  appropriations  were  just  slightly  larger  than  tuition  and  fees  at  $52.9  million.  However,  by  2004  state  appropriations  had  declined  to  $46.6  million.  In  2005  and  2006  there  were  increases  in  state  appropriations,  but  in  2007  state  appropriations  fell  to  $46.6  million.  Then  in  2008,  state  appropriations  increased  by  more  than  $10  million,  surpassing  the  2001  level  of  state  appropriations  for  the  first  time.  However,  this  increase  reflected  in  part  a  $4.8  million  payment  for  state  appropriation  that  was  originally  appropriated  in  2007  but  the  state  delayed  payment,  giving  this  money  to  the  University  in  2008.  In  2009,  state  appropriations  declined  by  $4.2  million,  ending  up  at  $52.5  million.  In  2010,  state  appropriations  declined  another  $1.7  million  and  in  2011  state  appropriations  were  essentially  unchanged.    In  2012,  state  appropriations  plunged  to  just  $43.1  million  before  increasing  to  $45  million  in  2013  and  $45.6  million  in  2014.  

 In  2001  for  every  dollar  in  tuition  and  fees  collected  the  University  it  

received  $1.01  in  state  subsidy.  By  2011,  state  appropriations  were  no  longer  the  largest  source  of  revenue  and  for  every  dollar  collected  in  tuition  and  fees  the  University  only  received  $0.37.    By  2014,  for  every  dollar  collected  in  tuition,  the  University  received  on  $0.28.  Figure  20  shows  the  decline  in  state  support.  

   

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     Another  important  source  of  revenue  for  the  University  are  Federal  grants  

and  contracts,  which  increased  from  $10.2  million  in  2001  to  $13.3  million  in  2006.  Then  in  2007  Federal  grants  and  contracts  decline  to  $7.4  million  before  rebounding  slightly  in  2008  to  $8.1  million.  This  decline  in  Federal  grants,  however,  is  deceptive  because  a  significant  portion  of  what  had  been  classified  as  Federal  grants  was  reclassified  as  non-­‐operating  revenue.  Under  a  change  in  accounting  rules,  universities  now  classify  Pell  grants  as  non-­‐operating  revenue.    If  one  combines  Pell  grants  with  other  Federal  grants  and  contracts  then  Federal  grants  and  contracts  declined  by  just  about  a  half  million  dollars  in  2007  and  increased  in  both  2008  and  2009.    In  2009,  combined  Federal  grants  and  contracts  along  with  Pell  grants  were  $18.2  million.  In  2010,  Federal  grants  and  Pell  grants  combined  increased  to  $27.5  million  and  in  2011  these  combined  categories  reached  $34.6  million.  Since  2011,  Federal  grants  and  contracts  have  decline  and  Pell  grants  flatten  out  so  that  be  2014  the  total  of  Federal  grants  and  contracts  plus  Pell  grants  was  equal  to  just  $30.5  million,  a  decline  of  11.8%.      

 Another  important  source  of  revenue  was  revenue  from  auxiliary  operations.  

However,  in  between  2009  and  2011  revenue  from  auxiliary  operations  was  fairly  flat.    However,  since  2011  auxiliary  revenue  has  increased  from  $22.6  million  to  $24.9  million  an  increase  of  10.1%.  

       

   

 $-­‐        

 $0.20    

 $0.40    

 $0.60    

 $0.80    

 $1.00    

 $1.20    

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  20    Dollars  in  State  Support  per  Dollar  of  TuiRon  

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 Table  10  

Revenues,  Expenses  and  Change  in  Net  Position  Thousands  of  $  

For  year  ending  June  30     2009   2010   2011   2012   2013   2014  Tuition  and  fees      $119,397      $130,318      $137,613      $149,095      $155,967      $165,846    Federal  grants  and  contracts    $9,968      $11,168      $14,524      $11,824      $10,215      $8,968    State,  local  and  private  grants  and  contracts    $6,196      $3,912      $3,244      $3,412      $4,180      $4,455    Departmental  activities    $5,384      $5,229      $5,470      $5,998      $8,664      $7,815    Auxiliary  activities    $21,261      $21,304      $22,598      $23,424      $24,113      $24,888    Other  operating  revenues    $428      $430      $418      $269      $249      $249    Total  operating  revenues    $162,633      $172,360      $183,868      $194,022      $203,388      $212,221    Operating  expenses              Instruction    $90,732      $93,405      $99,012      $104,180      $110,296      $114,260    Research    $7,148      $8,230      $9,531      $11,253      $10,297      $9,081    Public  service    $2,289      $3,303      $2,943      $3,709      $4,251      $4,616    Academic  support    $15,850      $17,099      $19,127      $20,589      $28,066      $30,212    Student  services    $15,977      $16,641      $17,368      $18,604      $28,381      $28,104    Institutional  support    $27,280      $28,600      $28,752      $32,583      $23,345      $24,759    Operation  and  maintenance  of  plant    $17,377      $17,741      $17,891      $18,877      $21,021      $20,056    Depreciation    $12,123      $11,913      $12,040      $12,556      $13,710      $15,255    Student  aid    $10,659      $11,225      $12,888      $13,211      $13,127      $13,719    Auxiliary  activities    $23,323      $22,766      $23,743      $23,872      $22,437      $22,497    Other  expenditures    $12      $18      $16      $13      $17      $19    Total  operating  expenses      $222,771      $230,941      $243,312      $259,445      $274,948      $282,579    Operating  Loss    $(60,137)    $(58,581)    $(59,444)    $(65,424)    $(71,560)    $(70,358)        

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Table  10    Continued  Revenues,  Expenses  and  Change  in  Net  Position  

Thousands  of  $  For  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  Non-­‐operating  revenues  (expenses)              State  appropriations    $52,452      $50,691      $50,761      $43,145      $44,964      $45,652    Gifts    $19,076      $4,126      $4,295      $5,806      $4,853      $9,650    Investment  income  (net  of  investment  expense)    $(12,552)    $17,884      $20,879      $1,471      $14,685      $22,358    Interest  on  capital  asset  related  debt    $(4,774)    $(4,256)    $(4,919)    $(4,515)    $(5,789)    $(4,398)  Pell  grants    $8,265      $16,366      $20,038      $21,037      $20,726      $21,517    Other          $142      $135      $142      $147      $450      $565    Net  non-­‐operating  revenues    $62,609      $84,945      $91,196      $67,090      $79,889      $95,343    Net  Income    $2,471      $26,364      $31,752      $1,667      $8,329      $24,985    Capital  appropriations    $-­‐      $-­‐      $-­‐      $30,427      $10,073      $10,770    Capital  grants  and  gifts    $13      $38      $1,497      $4,929      $7,674      $216    Additions  to  permanent  endowments    $688      $1,054      $1,226      $588      $965      $3,581    Total  other  revenues    $701      $1,091      $2,723      $35,945      $18,713      $14,566    Increase  in  net  assets    $3,104      $27,395      $34,414      $37,550      $27,042      $39,551    Net  Assets,  beginning  of  year  -­‐  restated    $290,583      $293,686      $321,081      $355,495      $392,246      $419,288    Net  Assets,  end  of  year    $293,686      $321,081      $355,495      $393,046      $419,288      $458,839        

Investment  income  can  be  fairly  volatile.  In  some  years  when  equity  and  bond  prices  rise  rapidly  investment  income  can  also  rise  rapidly.  When  securities  prices  fall,  investments  can  show  a  loss  from  the  perspective  of  the  income  statement  this  is  an  expense.  However,  these  gains  and  losses  are  for  the  most  part  unrealized  gains  and  losses  i.e.,  gains  and  losses  on  paper.  A  method  for  removing  some  of  this  volatility  when  trying  to  measure  investment  income  is  to  smooth  it  by  assuming  a  fixed  rate  of  return  on  investments  over  time.  In  this  report,  we  assume  a  4.5%  rate  of  return  on  investments.  From  2001  to  2014  the  total  investment  income  of  the  University  was  $102.6  million.  If  the  University  had  earned  an  average  of  4.5%  on  its  investments  over  this  period  its  total  investment  income  would  have  been  $101.7  million,  which  is  reasonably  close  to  the  actual  investment  income  over  this  period.  We  refer  to  this  as  adjusted  investment  income.  

 

39

The  sources  of  revenue  for  the  University  are  shown  in  are  shown  in  Figure  21.  Figure  21  clearly  shows  that  tuition  is  an  increasingly  important  source  of  revenue  and  that  the  importance  of  state  appropriations  has  diminished  over  time.    

   

The  University  still  has  a  diversified  base  of  revenue,  although  it  has  become  less  diversified  over  time  and  is  now  much  more  heavily  dependent  on  tuition.  One  way  of  measuring  the  diversification  of  revenue  is  to  look  at  the  Herfindahl  Index  of  income  concentration.    The  Herfindahl  Index  is  calculated  as  the  sum  of  squared  shares  of  revenue  from  each  source.  The  index  runs  from  1/n  to  1  where  1/n  represents  each  source  of  revenue  having  an  equal  share  and  1  would  be  when  all  revenue  comes  from  a  single  source.  The  Herfindahl  index  can  also  be  normalized  as  

follows:   so  that  it  varies  between  0  and  1.  Figure  22  shows  the  

normalized  Herfindahl  Index.      The  year  2009  seems  to  be  a  bit  of  an  anomaly  due  to  a  large  rise  in  gift  

income.    In  general,  however,  the  index  has  been  rising,  which  means  that  the  University’s  sources  of  income  are  becoming  more  concentrated.        

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

80%  

90%  

100%  

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Figure  21    Sources  of  Revenue  

Adjusted  Investment  Income  

State  appropria4ons  

Other  opera4ng  revenues  

Gi?s  

Auxiliary  ac4vi4es  

Departmental  ac4vi4es  

Grants  &  contracts  

Tui4on  and  fees    

H * =si2 −1 n

i=1

n

∑⎛⎝⎜⎞⎠⎟

1−1 n( )

40

   

 Expenses       Expenses  for  the  most  part  represent  an  outflow  of  resources  from  a  university  (costs  incurred).  There  are  operating  and  non-­‐operating  expenses.  Operating  expenses  include  instructional  expenses,  expenses  for  public  service,  administrative  services  such  as  academic  support  and  institutional  support,  plant  operations  and  maintenance,  scholarships  and  fellowships,  expenses  for  auxiliary  operations  and  depreciation.  Operating  expenses  can  be  listed  by  functional  categories  such  as  those  discussed  above  or  they  can  be  listed  as  natural  categories  such  as  wages  and  benefits  or  purchases  of  goods  and  services.  It  is  often  the  case  that  the  “natural  classification,”  which  contains  personnel  costs,  are  not  reported  in  the  main  financial  statements,  but  are  reported  in  the  notes  to  the  financial  statements.  Non-­‐operating  expenses  consist  primarily  of  interest  paid  on  debt.    

 Operating  expenses  are  also  shown  in  Table  10.  Overall,  operating  expenses  

increased  from  $146.9  million  in  2001  to  $282.6  million  in  2014.  The  largest  single  operating  expense  is  for  instruction.  Spending  for  instruction  increased  from  $57.9  million  to  $114.3  million,  an  average  annual  increase  of  about  5.4%.  However,  during  this  period  enrollment  grew  at  an  average  annual  rate  of  2.1%  so  spending  on  instruction  after  adjusting  for  enrollment  increased  at  an  average  annual  rate  of  3.1%,  which  was  probably  not  much  above  the  average  level  of  inflation  for  this  period.  

 Using  data  from  IPDES,  Figure  23  shows  instructional  salaries  as  a  percent  of  

total  instructional  spending.    This  data  is  only  available  from  2002  through  2013.  However,  the  trend  is  unmistakable,  and  it  shows  that  faculty  salaries  as  percent  of  instructional  spending  are  declining.    

0.00  

0.05  

0.10  

0.15  

0.20  

0.25  

0.30  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  22    Normalized  Herfindahl  Index  

41

 

   Spending  on  academic  support  increased  at  an  annual  rate  of  7.2  percent  

from  $9.6  million  to  $19.1  million.  Between  2008  and  2011  spending  for  academic  support  increased  by  about  $5.9  million,  an  increase  of  nearly  44.7  percent.    Since  2011  spending  on  academic  support  has  increased  from  $19.1  million  to  $30.2  million,  an  increase  of  58%.  Spending  on  institutional  support  increased  at  an  average  annual  rate  of  3.4%  percent,  going  from  $16  million  in  2001  to  $24.8  million  in  2014.    

 There  was  also  a  substantial  increase  in  spending  on  operation  and  

maintenance  of  plant,  which  rose  from  $10.3  million  in  2001  to  $20.1  million  in  2014,  an  average  annual  increase  of  5.2%.  Spending  on  student  aid  has  increased  at  an  annual  rate  of  11.1  percent  going  from  $3.5  million  in  2001  to  $13.7  million  in  2014.  Finally,  auxiliary  expenses  actually  decreased  from  2001  through  2005  going  from  $20.9  million  to  $18.9  million,  but  then  rose  from  2005  through  2009  reaching  $23.3  million.  Since  2009  auxiliary  expenses  have  remained  flat.  

 Excluding  depreciation,  which  is  a  non-­‐cash  expense,  Figure  24  shows  how  

expenses  are  allocated  at  Oakland  University.  The  largest  single  expense  in  both  years  is  for  instruction.  In  2005  instruction  accounted  for  44.2%  of  expenses  but  this  percent  declined  to  42.7%  in  2014.      

       

0.0%  10.0%  20.0%  30.0%  40.0%  50.0%  60.0%  70.0%  80.0%  

2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013  

Figure  23  InstrucRonal  Salaries  as  a  Percent  of  Total  InstrucRonal  

Spending  

42

   

     

Spending  on  instruction  relative  to  spending  on  academic  support  and  institutional  support,  the  two  major  categories  of  administrative  spending,  has  shifted.  Figure  25  shows  the  ratio  of  instructional  spending  to  administrative  spending.      

   

0%  10%  20%  30%  40%  50%  60%  70%  80%  90%  

100%  

Figure  24    DistribuRon  of  Spending  

Other  expenditures  

Auxiliary  ac4vi4es  

Student  aid  

Opera4on  and  maintenance  of  plant  Ins4tu4onal  support  

Student  services  

Academic  support  

Research  &  Public  Service  Instruc4on  

 $1.70    

 $1.80    

 $1.90    

 $2.00    

 $2.10    

 $2.20    

 $2.30    

 $2.40    

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  25  InstrucRonal  v.  AdministraRve  Spending  

43

In  2001  for  every  $1  spent  on  administrative  spending  the  University  spent  $2.26  on  instruction.  This  ratio  rose  to  $2.33  by  2003.  Since  2003  the  ratio  has  trended  down  and  was  $2.08  in  2014.  To  see  the  impact  of  the  shift  from  instructional  to  administrative  spending,  we  calculated  the  additional  dollars  that  would  have  been  spent  on  instruction  if  the  ratio  had  remained  at  its  2003  level.  If  the  University  had  spent  $2.33  on  instruction  for  every  $1  on  administration  the  University  would  have  spent  an  additional  $4.1  million  on  instruction  in  2014.    Operating  Losses       The  difference  between  operating  revenues  and  operating  expenses  is  known  as  the  operating  loss.  At  publicly  funded  or  assisted  universities,  the  difference  between  operating  revenues  and  operating  expenses  will  always  be  negative.  This  is  because  public  institutions  of  higher  education  rely  on  state  appropriations,  which  are  not  counted  as  part  of  operating  revenue.  This  is  simply  an  accounting  quirk.  If  an  administrator  claims  that  a  university  is  running  an  operating  loss,  faculty  members  should  be  aware  of  the  fact  that  all  public  institutions  run  operating  losses  and  these  losses  in  and  of  themselves  are  meaningless.    

The  operating  losses  shown  in  Table  10  are  purely  artifacts  of  the  GASB  34  &  35  reporting  format.    Virtually  all  state  universities  and  colleges  show  an  operating  loss  because  state  appropriations  are  not  included  with  operating  revenues.    

   

   

0%  

10%  

20%  

30%  

40%  

50%  

60%  

70%  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013  2014  

Figure  26  OperaRng  Loss  as  Percent  of  OperaRng  Revenue  

44

The  operating  loss  was  much  larger  in  relative  terms  in  2001-­‐2003  than  it  was  from  2004-­‐2009.  In  2001  the  loss  was  60  percent  of  operating  revenue.  In  2004  the  operating  loss  as  percent  of  operating  revenue  fell  to  36  percent  has  fluctuated  between  34  and  39  percent.  In  2009,  the  operating  loss  as  a  percentage  of  operating  revenue  was  37  percent.    In  2014,  operating  losses  as  a  percentage  of  operating  revenue  declined  to  33  percent.    Figure  26  shows  operating  losses  as  a  percent  of  operating  revenues.  The  decline  in  this  percentage  means  that  the  University  has  been  improving  its  performance.    

   

Income  (Loss)  before  Other  Revenues       The  difference  between  non-­‐operating  revenues  and  non-­‐operating  expenses  is  known  as  net  non-­‐operating  revenues.  The  sum  of  operating  losses  and  net  non-­‐operating  revenues  is  known  as  income  (loss)  before  other  revenue  and  can  be  referred  to  as  “net  income.”    Net  income  can  be  an  important  indicator  of  how  well  a  university  or  college  is  performing  financially.  Figure  27  shows  the  net  income  of  the  University.    

   In  2001  the  University’s  net  income  was  $3.1  million.  In  each  of  the  next  two  

years  the  University  had  losses  of  ($186,775)  and  ($398,852).  In  2004,  the  University’s  net  income  was  $11.1  million  and  in  2005  it  was  $8.7  million.  It  appears  as  if  the  losses  in  2002  and  2003  were  caused  by  declines  in  investment  income  and  declines  in  state  support.  The  rebound  in  net  income  in  2004  and  2005  was  due  primarily  to  faster  growth  in  revenue  combined  with  slower  growth  in  operating  expenses,  which  substantially  reduced  the  operating  loss.  Increased  investment  earnings  in  2004  and  2005  also  helped  increase  net  income.    

 Net  income  in  2006  was  slightly  lower  than  2005  at  $10.6  million.  Net  

income  rose  in  both  2007  and  2008  reaching  $11.8  million  in  2008.  In  2009  there  was  a  sharp  drop  in  net  income  with  net  income  falling  to  $2.4  million.  As  was  the  case  in  2002  and  2003,  the  main  factor  in  the  decline  in  net  income  was  a  $12.5  million  loss  in  investment  income.  (In  a  previous  report  this  was  reported  as  a  $13.6  million  loss  as  shown  in  the  2009  financial  statements.  However,  this  number  was  corrected  in  the  2010  financial  statement  and  the  loss  was  reported  as  being  $12.5  million).  This  loss  was  due  to  a  decline  in  the  fair  market  value  of  investments  and  was  essentially  a  paper  loss.  Over  the  next  two  years  investment  income  rebounded  and  net  income  was  reported  at  $26.4  million  in  2010  and  $31.7  million  in  2011.  In  2012  net  income  was  1.7  million  but  in  2013  it  was  $8.3  million  and  in  2014  it  was  $25  million.  

 

45

     Changes  in  the  fair  market  value  of  investment,  resulting  in  unrealized  losses  

and  gains  can  cause  significant  fluctuations  in  investment  income.    Figure  18  “adjusted  net  income”  presents  an  alternative  measure  of  net  income  designed  to  reduce  variation  in  net  income,  caused  by  fluctuations  in  reported  investment  income.  Adjusted  net  income  is  calculated  by  taking  4.5  percent  times  the  value  of  investments  and  using  this  adjusted  investment  income  in  place  of  the  actual  investment  income.  The  4.5  percent  rate  of  return  was  chosen  so  that  the  average  value  of  actual  investment  income  was  nearly  equal  to  the  average  value  of  adjusted  investment  income  over  the  period  from  2001-­‐2014.  This  has  the  effect  of  smoothing  out  fluctuations  in  investment  income.  In  addition,  $4.8  million  was  subtracted  from  revenue  in  2008  and  added  to  revenue  in  2007  as  part  of  the  adjustment.  This  adjustment  was  made  to  correct  for  a  delayed  state  appropriations  payment  of  $4.8  million,  which  the  University  received  in  FY  2008.    

 

 

 $(10,000)  

 $-­‐    

 $10,000    

 $20,000    

 $30,000    

 $40,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  27    Net  Income  

 $-­‐          $5,000.00      $10,000.00      $15,000.00      $20,000.00      $25,000.00    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  28    Adjusted  Net  Income  

46

 The  adjusted  net  income  shows  low  net  income  in  2001  and  2002  with  a  loss  

in  2003.    In  2004,  there  was  a  substantial  increase  in  adjusted  net  income  largely  due  to  a  reduction  in  operating  expenses  coupled  with  an  increase  in  operating  revenues.    Adjusted  net  income  increased  in  2005  and  was  just  slightly  higher  in  2006.  In  2007,  there  was  a  decline  in  adjusted  net  income  due  largely  to  increases  in  operating  expenses.  In  looking  at  the  reported  net  income  (see  Figure  27),  this  drop  in  net  income  does  not  appear,  because  it  was  offset  by  investment  income  of  $14.5  million.  In  2008,  adjusted  net  income  rebounded  slightly  due  to  a  9  percent  growth  in  operating  revenue  coupled  with  a  5  percent  growth  in  operating  expenses,  which  reduced  the  University’s  operating  loss  by  about  $2.5  million.    

 In  2009,  the  University  had  a  net  income  of  $2.4  million,  which  included  a  

$12.5  million  loss  on  investments  and  $19.1  in  gift  income.  After  adjusting  for  investment  income  and  using  the  average  level  of  gift  income  the  adjusted  net  income  for  the  University  in  2009  was  $6.8million.  In  2010,  the  University  had  an  adjusted  net  income  $17.7  million  and  $20.8  million  in  2011.  Adjusted  net  income  fell  in  2012  and  2013  to  $9.7  million  and  then  8.4  million  respectively.  In  2014  adjusted  net  income  rose  to  $14.9  million.    Changes  in  Net  Assets       In  addition  to  the  revenues  discussed  above,  there  are  three  other  major  sources  of  revenue  for  colleges  and  universities.  These  are  capital  appropriations,  capital  grants  and  gifts  and  additions  to  permanent  endowments.  These  sources  of  revenue  are  restricted  and  either  the  corpus  (principal)  cannot  be  spent  or  the  funds  are  earmarked  specifically  for  capital  projects  and  as  such  cannot  be  used  to  support  salary  and  benefits  directly.  Nevertheless,  when  universities  receive  capital  appropriations  and  gifts,  it  frees  up  funds  generated  through  operations  which  otherwise  would  have  to  be  used  to  support  capital  projects.  Therefore,  funding  for  capital  projects,  whether  by  state  appropriation  or  by  gift,  is  an  important  source  of  revenue.        

Unfortunately,  capital  appropriations  and  gifts  tend  to  be  lumpy  (high  in  some  years,  very  small  in  others)  and  so  it  may  be  difficult  to  count  on  them  as  part  of  a  regular  revenue  stream.  However,  most  colleges  and  universities  have  a  fairly  good  idea  of  a  certain  minimum  level  of  increases  in  their  permanent  endowment  as  well  as  capital  appropriations  and  gifts  and  can  factor  these  revenues  into  their  spending  plans.  Finally,  another  source  of  revenue  that  is  included  in  the  calculation  of  the  change  in  net  assets  are  transfers.  The  transfer  of  the  Foundation’s  resources  to  the  University  are  shown  as  revenue  but  cannot  be  considered  a  regular  source  of  revenue  to  the  University.      

47

  The  sum  of  Income  (losses)  before  other  revenue  (“net  income”)  along  with  capital  appropriations  and  gifts  and  increases  to  permanent  endowment  is  equal  to  the  increase  or  decrease  in  net  assets.  The  change  in  net  assets  is  in  effect  the  bottom  line  for  a  university  in  a  given  year.  If  there  is  an  increase  in  net  assets  the  flow  of  revenue  into  the  university  has  been  greater  than  expenses  and  if  there  is  a  decrease  in  net  assets  the  university  has  experienced  a  loss.         A  final  issue  that  demands  our  attention  in  trying  to  understand  revenues  and  expenses  is  the  treatment  of  depreciation.  Historically  (pre  GASB-­‐34),  colleges  and  universities  did  not  account  for  depreciation  of  fixed  assets.  Therefore,  at  the  end  of  a  fiscal  year  if  revenues  and  other  additions  exceeded  expenditures  colleges  and  universities  experienced  an  increase  in  “fund  balances.”  An  increase  in  fund  balances  was  the  equivalent  to  an  increase  in  net  assets  except  that  net  assets  also  account  for  depreciation.    

Depreciation  is  an  expense  but  it  is  a  non-­‐cash  expense.  Depreciation  is  a  way  of  allocating  the  cost  of  fixed  capital  over  the  useful  life  of  an  asset.  In  theory,  the  cost  related  to  the  use  of  a  fixed  asset  in  a  given  year  depends  on  the  wear  and  tear  on  fixed  assets.  It  is  important  for  any  business  to  take  into  account  the  cost  of  producing  a  good  or  service  so  that  it  can  charge  a  price  for  the  good  or  service  that  at  a  minimum  covers  the  cost  of  production.  However,  unlike  other  expenses,  depreciation  does  not  involve  making  cash  payments  to  some  entity  external  to  a  college.  When  a  college  has  an  expense  for  wages  or  utilities  it  has  to  write  a  check  to  cover  that  expense  which  reduces  a  university’s  cash  holdings.    When  a  college  claims  depreciation  as  an  expense,  it  reduces  its  net  income  or  the  change  in  net  assets  on  paper  but  there  is  no  actual  outflow  of  cash.              One  question  that  should  be  raised  is  whether  depreciation  in  colleges  and  universities  is  a  legitimate  cost.  Unlike  private  for  profit  businesses  universities  receive  capital  appropriations  and  gifts  to  fund  renewal  and  replacement  of  assets.    If  the  cost  of  a  building  is  covered  entirely  by  capital  appropriations  and  gifts  then  there  is  no  cost  incurred  by  the  university  and  so  there  is  nothing  to  allocate.  In  contrast,  for  profit  business,  at  least  in  theory,  are  supposed  to  fund  renewal  and  replacement  of  assets  without  the  assistance  of  government  or  private  donors.  Therefore  in  looking  at  the  net  income  of  universities  one  should  probably  discount  depreciation  as  an  expense.      

48

   Figure  29  shows  the  change  in  net  assets  for  the  University.  In  looking  at  the  

data  on  changes  in  net  assets  one  can  see  that  changes  were  positive  each  year.  In  2001,  the  University  had  a  $12.6  million  increase  in  net  assets.  This  was  followed  by  an  increase  in  net  assets  of  $18.5  million  in  2002.  In  2002,  the  main  reason  for  the  large  increase  in  net  assets  was  an  $18.6  million  capital  appropriation  from  the  state.  In  2003,  the  University  had  a  $4.3  million  increase  in  net  assets  following  by  increases  of  $11.9  and  $15.8  in  2004  and  2005  respectively.    In  2006,  the  transfer  of  funds  from  the  University’s  Foundation  drove  the  sharp  increase  in  the  change  in  net  assets.  In  2007  and  2008  the  change  in  net  assets  was  largely  driven  by  net  income  since  there  were  no  substantial  transfers  and  the  University  has  not  received  a  capital  appropriation  since  2005.  In  2009,  the  decline  in  the  change  in  net  assets  was  driven  by  the  loss  in  investment  income  and  the  change  in  net  assets  was  $3.1  million.  In  2010  and  2011  the  change  in  net  assets  was  $27.4  million  and  $34.4  million  respectively.  In  2012  the  change  in  net  assets  was  $37.5  million.  It  fell  to  $27  million  in  2013  before  rebounding  to  $39.6  million  in  2014.  

 Margin  Ratios    

Figure  20  shows  three  margin  ratios  for  the  University  from  2001  to  2014.    The  net  income  ratio  is  the  ratio  of  net  income  to  operating  revenue  and  non-­‐operating  revenue.    The  second  ratio  is  the  net  asset  ratio,  which  is  the  ratio  of  the  change  in  net  assets  to  total  revenue  from  all  sources.    The  third  ratio  is  the  adjusted  net  income  ratio  that  shows  the  ratio  of  adjusted  net  income  to  operating  and  non-­‐operating  revenue.  

   

 $-­‐    

 $10,000    

 $20,000    

 $30,000    

 $40,000    

 $50,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  29    Change  in  Net  Assets  

49

   

 The  rates  of  return  for  the  most  part  mirror  the  actual  levels  of  income  in  

their  patterns.  All  three  ratios  follow  the  same  pattern  with  the  exceptions  of  the  net  asset  ratios  in  2002  and  2006,  which  increased  while  the  other  two  ratios  decreased  and  the  adjusted  net  income  ratio,  which  increased  in  2009.  These  anomalies  were  caused  by  the  $18  million  capital  appropriation,  which  the  University  received  in  2002,  and  the  $8.7  million  transfer  from  the  University’s  Foundation  to  the  University  in  2006  and  the  $13.6  million  loss  on  investments  in  2009.  

 The  margin  ratios  increased  dramatically  in  2010  and  2011  before  dropping  

precipitously  in  2012.  Much  of  this  decline  was  due  to  unrealized  losses  on  investments.  This  is  shown  in  the  adjusted  net  income  ratio,  which  while  falling  in  in  2012  also  fell  in  2013.  In  2014  all  of  the  margin  ratios  were  up.    

 Overall,  looking  at  the  statement  of  revenues,  expenses  and  changes  in  net  

assets  we  can  see  stable  performance,  but  with  some  increased  volatility  compared  to  earlier  years,  especially  the  years  between  2004  and  2008.  

   

   

-­‐2.0%  

0.0%  

2.0%  

4.0%  

6.0%  

8.0%  

10.0%  

12.0%  

14.0%  

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Figure  30    Margin  RaRos  

Net  Income  Ra4o  

Net  Asset  Ra4o  

Adjusted  Net  Income  Ra4o  

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The  Cash  Flow  Statement    The  third  financial  statement  is  the  statement  of  cash  flows.  Universities  and  

colleges  use  a  system  of  accrual  accounting,  which  means  they  book  revenues  when  they  earn  them  and  book  expenses  when  they  are  incurred.  However,  recognizing  revenue  is  not  always  the  same  as  collecting  cash.  For  example  a  university  may  send  a  bill  to  a  student  for  tuition  but  not  immediately  collect  the  money  that  is  owed.  This  shows  up  on  the  university’s  balance  sheets  as  an  increase  in  accounts  receivable  and  is  booked  on  the  statement  of  revenues,  expenses  and  changes  in  net  assets  as  revenue.    While  the  university  shows  an  increase  in  revenue  it  does  not  actually  have  more  cash.  Hence  the  role  of  the  cash  flow  statement  is  to  show  the  inflows  and  outflows  of  cash.  Looking  at  the  Statement  of  Cash  Flows  one  can  see  another  picture  of  the  flows  of  resources  into  and  out  of  a  university  or  college.      The  basic  outline  of  the  statement  of  cash  flows  is  found  in  Figure  31.    

 

 Figure  31.  

   The  Statement  of  Cash  Flows  at  public  colleges  and  universities  has  four  

major  components.  First,  cash  flows  from  operations,  which  includes  inflows  in  the  form  of  tuition  and  fees,  grants  and  contracts,  sales  and  services  and  outflows  in  the  form  of  payments  to  employees,  suppliers  and  students.    The  second  major  component  is  cash  flows  from  non-­‐capital  financing  activities.    The  most  important  item  in  this  category  is  state  appropriations.  Also  now  shown  in  this  category  are  Federal  direct  lending  receipts  and  Federal  direct  lending  disbursements  as  well  as  gift  and  grants  for  non-­‐capital  purposes.    Third  are  cash  flows  from  capital  and  related  financing  activities  which  include  inflows  in  the  form  of  capital  appropriations  and  capital  grants  and  outflows  in  the  form  of  purchases  of  capital  assets  as  well  as  outflows  for  principal  and  interest  payments.    Finally,  there  are  cash  flows  from  investing  activities  such  as  the  purchase  and  sale  of  investments  and  interest  received  on  investments.  The  sum  of  each  of  the  categories  of  cash  flow  results  in  an  increase  or  decrease  in  cash  held  by  the  college  or  university.      

Cash  Flows  from  Opera4ng  Ac4vi4es  

Cash  Flows  from  Non-­‐Opera4ng  Ac4vi4es  

Cash  Flows  from  Capital  Financing  Ac4vi4es  

Cash  Flows  from  Investment  Ac4vi4es  

Net  Increase  (Decrease)  in  Cash  

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Table  11  Cash  Flows  

Thousands  of  $  For  the  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  CASH  FLOWS  FROM  OPERATING  ACTIVITIES:              Tuition  and  fees    $119,811      $129,661      $136,863      $147,972      $159,557      $168,251    Grants  and  contracts    $16,618      $13,108      $17,787      $15,127      $15,859      $11,998    Payments  to  suppliers    $(50,252)    $(51,528)    $(54,132)    $(60,121)    $(67,636)    $(70,483)  Payments  to  employees    $(147,309)    $(154,679)    $(158,591)    $(169,798)    $(179,616)    $(187,316)  Payments  for  scholarships  and  fellowships    $(10,659)    $(11,225)    $(12,888)    $(13,211)    $(13,127)    $(13,719)  Loans  issued  to  students  and  employees    $(119)    $(190)    $(198)    $(258)    $(317)    $(423)  Collection  of  loans  from  students  and  employees    $290      $271      $322      $355      $266      $313    Auxiliary  enterprise  charges    $21,133      $21,205      $22,197      $23,337      $24,939      $24,941    Other  receipts    $3,930      $6,496      $4,930      $6,367      $7,658      $7,277    Net  cash  used  by  operating  activities    $(46,557)    $(46,882)    $(43,710)    $(50,231)    $(52,417)    $(59,161)  CASH  FLOWS  FROM  NONCAPITAL  FINANCING  ACTIVITIES:              State  appropriations    $52,358      $51,011      $50,748      $44,530      $44,633      $45,527    Federal  direct  lending  receipts    $75,530      $91,481      $100,126      $106,844      $106,482      $109,510    Federal  direct  lending  disbursements    $(75,530)    $(91,481)    $(100,126)    $(106,844)    $(106,482)    $(109,510)  Gifts  and  grants  for  other  than  capital  purposes    $13,982      $21,743      $26,115      $27,953      $27,367      $33,281    Endowment  gifts    $688      $1,054      $1,226      $588      $965      $6,881    Net  cash  provided  by  noncapital  financing  activities    $67,028      $73,808      $78,090      $73,071      $72,966      $85,689      

       

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Table  11  (Continued)  Cash  Flows  

Thousands  of  $  For  the  year  ending  June  30  

  2009   2010   2011   2012   2013   2014  CASH  FLOWS  FROM  CAPITAL  FINANCING  ACTIVITIES:              Proceeds  from  capital  debt    $-­‐      $33,650      $-­‐      $-­‐      $138,099      $-­‐    Capital  appropriations    $-­‐      $-­‐      $-­‐      $18,287      $22,213      $-­‐    Capital  grants  and  gifts  received    $17      $-­‐      $1,497      $4,784      $7,142      $353    Purchases  of  capital  assets    $(9,881)    $(14,286)    $(33,161)    $(49,385)    $(54,128)    $(95,709)  Principal  paid  on  capital  debt  and  leases    $(2,857)    $(2,952)    $(3,704)    $(3,865)    $(26,157)    $(4,708)  Interest  paid  on  capital  debt  and  leases    $(5,450)    $(3,519)    $(4,583)    $(4,343)    $(7,049)    $(4,068)  Net  cash  provided  (used)  by  capital  financing  activities    $(18,171)    $12,893      $(39,951)    $(34,522)    $80,119      $(104,132)  CASH  FLOWS  FROM  CAPITAL  FINANCING  ACTIVITIES:    $-­‐      $33,650      $-­‐      $-­‐      $138,099      $-­‐    CASH  FLOWS  FROM  INVESTING  ACTIVITIES:    $-­‐      $-­‐      $-­‐      $18,287      $22,213      $-­‐    Proceeds  from  sales  and  maturities  of  investments    $2,036      $1,493      $117,962      $67,664      $69,372      $64,675    Investment  income    $745      $2,185      $6,333      $4,464      $6,394      $10,762    Purchases  of  investments    $(4,365)    $(4,948)    $(159,037)    $(56,059)    $(51,907)    $(101,839)  Net  cash  provided  by  investing  activities    $(1,584)    $(1,270)    $(34,743)    $16,069      $23,859      $(26,402)  Net  Increase  in  Cash  and  Cash  Equivalents    $716      $38,550      $(40,314)    $4,387      $124,528      $(104,007)  CASH  AND  CASH  EQUIVALENTS,  beginning  of  year    $33,766      $34,483      $73,033      $32,718      $37,106      $161,634    CASH  AND  CASH  EQUIVALENTS,  end  of  year    $34,483      $73,033      $32,718      $37,106      $161,634      $57,627    

 The  net  cash  from  operations  can  be  reconciled  with  the  university  or  

college’s  operating  loss.  The  operating  loss  minus  depreciation  and  losses  on  the  disposal  of  capital  assets  (another  non-­‐cash  expense)  plus  change  in  assets  and  liabilities  equals  the  net  cash  used  for  operating  activities.    

 

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The  cash  flow  from  operations  shows  the  actual  inflow  and  outflow  of  resources  used  to  fund  the  operation  of  a  college  or  university.  At  public  institutions  operating  cash  flow  is  the  sum  of  cash  flows  from  operations  plus  cash  flows  from  non-­‐capital  financing  activities  minus  interest  payments  on  debt.    

 One  of  the  major  differences  between  operating  cash  flows  and  income  (loss)  

before  other  revenue  (net  income)  is  that  net  income  includes  depreciation  as  an  expense.  However,  since  depreciation  is  a  non-­‐cash  expense  it  does  not  represent  an  outflow  of  cash  i.e.,  it  is  an  expense  only  on  paper.  Another  difference  is  that  it  excludes  unrealized  gains  and  losses  on  investments.  Thus,  operating  cash  flow  is  one  of  the  most  important  indicators  of  how  a  college  or  university  is  doing  from  a  financial  perspective.  

 Looking  at  the  Statement  of  Cash  Flows  for  the  University  for  the  years  2001-­‐

2014  one  can  see  another  picture  of  the  flows  of  resources  into  and  out  of  the  University.  Table  11  shows  the  cash  flow  statements.    

To  some  extent  the  income  (loss)  before  other  revenue  (net  income)  and  the  change  in  net  assets  can  give  a  somewhat  distorted  view  of  the  actual  flow  of  resources  into  and  out  of  the  University  because  it  counts  depreciation  as  an  expense  and  it  also  counts  unrealized  gains  and  losses  as  revenues  and  expenses  respectively.  

 Normally  when  a  university  has  an  expense  it  must  cover  that  expense  by  

writing  a  check.  This  results  in  an  outflow  of  cash  from  a  university.    In  the  case  of  non-­‐cash  expenses,  no  cash  flows  out  of  a  university.    In  other  words,  it  is  an  expense  only  on  paper.  Therefore  an  alternative  measure  of  operating  performance  can  be  found  by  looking  at  operating  cash  flows.    

 Table  11  above  shows  the  Statement  of  Cash  Flows  for  the  University  from  

2009-­‐2014  and  Figure  31  shows  the  operating  cash  flows  for  the  University  from  2001-­‐2014.  In  general,  one  can  see  an  upward  trend  in  operating  cash  flows.  In  2001  the  operating  cash  flow  for  the  University  was  $9.2  million  and  in  2014  the  operating  cash  flow  was  $22.5  million.  Over  the  fourteen-­‐year  period,  the  operating  cash  flow  varied  between  a  low  of    $6.9  million  in  2002  to  a  high  of  $29.8  million  in  2011.      

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 Overall,  looking  at  cash  flow  from  operations  the  University  has  maintained  a  

fairly  consistent  level  of  operating  cash  flows.  The  average  of  the  cash  flow  ratio  between  2012-­‐14  is  somewhat  lower  than  it  was  between  2009-­‐11  but  this  is  largely  due  to  the  volatility  in  operating  cash  flows  and  does  not  represent  any  fundamental  change  in  the  University’s  operating  cash  flows.  This  can  be  seen  by  looking  at  the  cash  flow  ratio  in  Figure  33,  which  shows  the  ratio  of  operating  cash  flows  to  total  revenue.    

   

 $-­‐      $5,000    

 $10,000      $15,000      $20,000      $25,000      $30,000      $35,000    

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Thou

sand

s  

Figure  32    OperaRng  Cash  Flow  

0.0%  

5.0%  

10.0%  

15.0%  

Figure  33  Cash  Flow  RaRo  

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Summary Indices and Conclusion    

  In  2014  Moody’s  gave  Oakland  University  an  A1  rating  with  a  stable  outlook.  The  basis  for  this  high  rating  was  that  Oakland  University  had  growing  enrollment,  high  levels  of  unrestricted  reserves  and  a  strong  economic  impact  on  the  southeast  part  of  Michigan.  Moody’s  notes  that  the  University  continues  to  generate  operating  surpluses  in  spite  of  cuts  in  state  appropriations.    

If  the  financial  statements  are  like  report  cards,  summary  indices  are  like  a  GPA.  These  indices  can  be  used  to  summarize  the  overall  financial  status  of  the  institution.  One  popular  summary  index  is  the  composite  index  similar  to  one  developed  by  Moody’s.  The  Ohio  Board  of  Regents  (OBR)  has  adapted  a  version  of  this  composite  index.  The  composite  index  used  by  OBR  assign  scores  to  three  ratios  and  then  use  a  weighted  average  of  those  scores  to  create  a  composite  index  indicating  the  financial  health  of  an  institution  (http://www.regents.state.oh.us/financial/sb6.html#Methodology).      

The  first  is  the  ratio  is  known  as  the  viability  ratio,  which  is  the  ratio  of  expendable  net  assets  to  long-­‐term  debt.  The  second  ratio  is  the  primary  reserve  ratio,  which  measures  the  ratio  of  expendable  net  assets  to  operating  expenses.  The  net  asset  ratio  is  the  change  in  net  assets  divided  by  total  revenues  (operating  and  non-­‐operating).      

Scores  for  each  of  the  three  ratios  are  whole  numbers  from  0  to  5  with  5  being  the  highest  score.    Table  11  below  shows  the  how  scores  are  assigned  to  each  ratio.    A  weighted  average  of  these  scores  is  then  used  to  calculate  a  composite  index  that  reflects  the  overall  financial  health  of  the  institution.    The  weights  used  by  OBR  are  50%  for  the  primary  reserve  score,  30%  for  the  viability  score  and  20%  for  the  net  asset  score.  Assigning  the  smallest  weight  to  the  net  asset  score  is  recognition  of  the  fact  that  there  is  significant  variability  in  the  change  in  net  assets  for  many  institutions  largely  due  to  fluctuations  in  the  value  of  investments  and  fluctuations  in  capital  appropriations.  

 Under  Ohio  law  an  institution  with  a  composite  index  of  1.75  or  less  for  two  

consecutive  years  will  be  placed  on  fiscal  watch.  This  allows  the  governor  to  replace  trustees  and  in  effect  put  an  institution  in  receivership.  

 Although SB 6 index used by the Ohio Board of Regents is a good index it does

have certain deficiencies. The three main deficiencies of this index are that it uses a step function for scoring, so that relatively small changes in any ratio can cause a particular score to jump up or down, it gives a to high a weight to the primary reserve ratio and totally ignores cash flows. With increasing volatility in financial markets, changes in the market value of investments have caused increased volatility in the change in net assets. However, in many cases these changes in net assets reflect only unrealized gains and losses in investments.

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This report also uses an index developed by the author and Howard Bunsis a Professor of Accounting at Eastern Michigan University that avoids these pitfalls. The scores for each ratio are assigned making use of the scores in Table 12 and a piecewise continuous function, so that small changes in ratios are reflected in small changes in scores. In addition, Fichtenbaum-Bunsis index lessens the effects of volatility in financial markets, by including a cash flow ratio. The viability ratio is given a weight of 22.5%, the primary reserve ratio a weight of 45%, the cash flow ratio a weight of 20% and the net asset ratio a weight of 12.5%. Table 13 shows the ratio scores for the University from 2009-2014 and Figure 35 shows the composite scores for the University from 2002-2014.  

   

Table  12  Ratio  Scores  

  0     1     2     3     4     5  Viability  Ratio     <  0     0  to  .29     .30  to  .59     .6  to  .99     1.0  to  2.5     >  2.5  or  

N/A  Primary  Reserve  Ratio    

<  -­‐.1     -­‐.1  to  .049     .05  to  .099    

.10  to  .249    

.25  to  .49     .5  or  greater  

Cash  Flow  Ratio  

<  -­‐.05     -­‐.05  to  0     0  to  .009     .01  to  .029    

.03  to  .049    

.05  or  greater  

Net  Asset  Ratio    

<  -­‐.05     -­‐.05  to  0     0  to  .009     .01  to  .029    

.03  to  .049    

.05  or  greater  

     

Table  13  Composite  Scores  

For  the  year  ending  June  30     2009   2010   2011   2012   2013   2014  Viability  Score   4   4   4   4   3   3  Primary  Reserve  Score  

5   5   5   5   5   5  

Net  Asset  Score   3   5   5   5   5   5                SB  6  Composite  Score  

4.3   4.7   4.7   4.7   4.4   4.4  

             Viability  Score   3.72   3.64   3.80   3.80   2.96   3.12  Primary  Reserve  Score  

5.00   5.00   5.00   5.00   5.00   5.00  

Cash  Flow  Score   5.00   5.00   5.00   5.00   4.19   5.00  Net  Asset  Score   2.67   5.00   5.00   5.00   5.00   5.00                F-­‐B  Composite  Score   4.42   4.69   4.73   4.73   4.38   4.58    

 

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 Table  12  shows  the  individual  scores  for  each  ratio  and  composite  scores  for  

Oakland  University  from  2009  to  2014.    The  scores  for  the  viability  ratio  declined  between  20011  and  2014  using  SB  6  scores.  Using  the  Fichtenbaum-­‐Bunsis,  method,  which  generates  continuous  scores,  the  viability  score  declines  in  2013  and  then  increases  somewhat  in  2014,  although  it  is  still  below  the  2012  level.  The  main  factor  behind  the  decline  in  the  viability  score  in  2013  was  the  increase  in  debt.    Even  with  this  decline,  the  University  still  has  a  manageable  level  of  debt  and  that  is  one  of  the  reasons  Moody’s  gave  them  an  A1  rating  with  a  stable  outlook.  

 The  primary  reserve  score  remained  constant  from  2009  through  2014  and  

using  both  the  SB  6  and  Fichtenbaum-­‐Bunsis  scoring  it  is  a  5,  which  is  the  highest  score.  This  score  is  a  reflection  of  the  high  level  of  unrestricted  reserves  held  by  the  University,  again  something  that  Moody’s  mentions  in  the  rationale  it  provides  for  giving  the  University  an  A1  rating.    

 The  net  asset  score  and  cash  flow  scores  are  also  very  high  and  have  been  

high  since  2001.  Figure  34  provides  a  graphical  view  of  the  composite  scores  for  the  period  2001-­‐2014.  The  overall  composite  score,  using  either  the  SB  6  methodology  or  the  Fichtenbaum-­‐Bunsis  methodology  show  the  same  results.    The  University  has  consistently  high  composite  scores.      

         

In  conclusion,  since  my  last  report,  which  covered  the  years  2009-­‐2011,  the  University’s  financial  condition  has  remained  stable  and  it  remains  in  excellent  financial  condition.    

0.00  

1.00  

2.00  

3.00  

4.00  

5.00  

2001  

2002  

2003  

2004  

2005  

2006  

2007  

2008  

2009  

2010  

2011  

2012  

2013  

2014  

Figure  34  Composite  Scores  

 

Fichtenbaum-­‐Bunsis  Composite  Score  

Moody's  Type  of  Composite  Score