Eileen Johnston Angie Stattman

Financial Terminology o Fund Balance o Assets o Liabilities o Full Time Equivalents (FTE’s) o Revenues o Expenditures o Approved Budget o Financial Statements: Balance Sheet and Statement of Financial Activities o Budget to Actual o Cash Flow o TABOR o Unrestricted Reserves Maximum o PPR vs PPOR

Why look at Ratios?  To monitor compliance  To manage daily operations  Required for obtaining external financing  Performance Ratios  Viability Ratios  Debt Ratios Types of Ratios:

Performance Ratios  Occupancy Expense  Property expenses (2600 and 4000)/Total expense  Goal = <10% (the higher the ratio, the more the resources being pulled from instruction)  Enrollment  10/1 Enrollment  Oct Count/Adopted Budget Enrollment  Goal: We want this ratios to be a positive number!  Change in Enrollment  (Current Year Enrollment – Prior Year Enrollment) / Prior Year Enrollment  Goal: > -3% (summarizes fluctuations in enrollment/revenue from year to year)

 Instructional Expense  Total Instructional Expense/Total Expenses  Goal: the higher the better; anything above 50% is excellent  Charter schools have a disadvantage here because facilities costs are > average (indicates a degree of efficiency when more resources are spent on instruction).  Operating Reserve Ratio (ORR)  Fund Balance of the General Fund / Total General Fund Expenses  Rations of <.0192 (or 1/52) would be a concern as it would indicate reserves cover < 1 week of exp’s. (this ratio is a measure of resources available to meet un- budgeted occurrence's that may come up)

 Operating Margin Ratio (OMR)  Operating Revenue – Operating Expenses/ Operating Revenue (current net change/revenue)  Ratio indicates the change to fund balance for every $1 of revenue. (goal is to grow fund balance over time)  Change in Fund Balance Ratio (CFBR)  Current year fund balance-prior year fund balance/prior year fund balance (current net change/prior year fund balance)  Another way to look at the OMR (goal is a positive number: indicates reserves are increasing over time)

Viability Ratios  Current Ratio (Working Capital Ratio)  Current Assets/Current Liabilities  goal: >1 ( reflects ability to pay current expenses. < 1 means a negative fund balance and not in compliance with TABOR)  Unrestricted Fund Balance on Hand  Unrestricted Fund Balance/(Total Expenses/12)  goal: > 1 month  Days Cash on Hand  Unrestricted Cash and Investments/(Expenditures/365)  goal: a minimum of 60 days

 Private Contributions  Grants+Foundation+Gifts+Contributions- Net Income/Total Expenditures  Goal: the lower the better with anything under 10% considered excellent.  Ensures that the school is not dependent on donations and grants.

Debt Ratios  Debt to Asset Ratio  Total Liabilities/Total Assets  Goal: <.9 (shows how much of the school’s assets are financed.  Debt Service Coverage Ratio  Net Income Available for Debt Service/Annual Debt Service  Industry Standard is 1.2. (determines school’s ability to service debt).

CSSI/CDE Best Practices Ratios  Salary and Benefits to PPR  Goal: 50%-70% of Total PPR  Administration Salaries to PPR  Goal: 8% -15% of PPR  Instructional Salaries  Goal: 50%-60% of total operating expenses  Building Lease Expense to PPR  Goal: less than or equal to 12% of PPR

Summary  Analysis of trends in ratios give you a clear picture on whether a school’s financial position is improving or deteriorating.  Conservative budgeting will help you meet unexpected challenges and, over time, will provide for increases in your fund balance:  Enrollment projections must be on the low end of your expected range.  Revenue should be budgeted low: worst case of your realistic scenario.  Expenses should be budgeted high: worst case of your (realistic) scenario.  Use the budget as a management tool: proactively revise your budget when necessary. Prevent situations where you have to ‘react’ to adjusting the budget because the school has exceeded budget.  Questions?