We are a CPA firm dedicated to assisting charter schools with financial reporting, budgeting, accounting, payroll, accounts payable, billing and

Transcription

1 Presented by: Bart Skidmore, CPA

2 We are a CPA firm dedicated to assisting charter schools with financial reporting, budgeting, accounting, payroll, accounts payable, billing and operational consulting. We have been in business for fifteen years, and have a staff with over 85 years of experience.

3 Financial Statement Terminology Ratios used for: Compliance Daily operations Obtaining external financing Types of Ratios: Performance Ratios Viability Ratios Debt Ratios

4 Fund Balance Current Assets Current Liabilities Revenues Expenditures Transfers Fixed Assets Long-Term Debt

5 Performance Ratios Occupancy Expense Operating Margin Instructional Expense Operating Reserve Ratio (ORR) Operating Margin Ratio (OMR) Change in Fund Balance Ratio (CFBR) Viability Ratios Private Contributions Current Ratio Working Capital Unreserved Fund Balance On Hand Days Cash on Hand Asset Sufficiency Ratio (ASR) Debt Ratios Debt to Asset Ratio Debt Burden Ratio (DBR) Debt Service Coverage Ratio

6 Occupancy Expense 10/1 Enrollment Change in Enrollment Instructional Expense Operating Reserve Ratio (ORR) Operating Margin Ratio (OMR) Change in Fund Balance Ratio (CFBR)

7 = Total Purchased Property Services Total Expenditures Total purchased property services = All programs 2600 & 4000 & object series 0400 in other programs. If the school has a net loss, the denominator will be Total Revenues instead of Expenditures. The ratio can be distorted if you use the expenditures when operating at a loss A percentage of less than 10% is desirable, however, we see this ratio fluctuate between 15-20% within charter schools. When financing their own facility, a higher ratio indicates resources are being pulled from the classroom.

8 = 10/1 Oct. Count Enrollment Adopted Budget Enrollment 10/1 Enrollment as a percentage of the school s budgeted enrollment Making sure this number is positive is the best scenario. Trying to scale back operations when the enrollment target is not met can be very difficult.

9 = (Current Year Enrollment Prior Year Enrollment Prior Year Enrollment A percentage of greater than -3% is desirable. Provides a simplified look at the fluctuations in enrollment from year to year. The ratio speaks to consistency in funding. Since enrollment is the biggest driver of funding, we want to minimize attrition over time.

10 = Total Instructional Expenditures Total Expenditures Total instructional Expenditures = Programs beginning with 0 and 1 and program 2000 A higher percentage is desirable with anything above 50% considered excellent. This is a measure of dollars being directed to the classroom. It is difficult to maintain a percentage greater than 50% when your admin or facilities cost are above the industry average Indicates a degree of efficiency when more resources are being channeled into the classroom.

11 = Fund Balance of the General Fund Total General Fund Expenditures, (net of transfers) This ratio indicates if a school is TABOR compliant. A warning indicator would be a reserve that covers less than a week of future expenditures, which is the equivalent of.0192, or 1/52 The ratio is a measure of the school s resources available to meet future unanticipated obligations.

12 = (General Fund Total Revenue General Fund Total Expenditures, net of transfers) General Fund Total Revenue The ratio indicates the amount added to the school s reserves for every $1 generated in revenue. The goal is to budget for a surplus What is the goal? The goal is to grow fund balance over time. This allows the school to address and fund any unforeseen event.

13 = (Current Year Fund Balance of the General Fund Prior Year Fund Balance) Prior Year Fund Balance of the General Fund A percentage increase in the fund balance from one year to the next is desirable This is another way of looking at the Operating Margin Ratio To determine whether a school s reserves in its general fund are increasing or decreasing

14 Private Contributions Current Ratio Working Capital Unreserved Fund Balance On Hand Days Cash on Hand Asset Sufficiency Ratio (ASR)

15 = Current Assets Current Liabilities A quotient equal to or greater than 1 is desirable A quotient less than 1 means that the school has a negative fund balance and is not meeting the TABOR 3% requirement To determine that the school has the ability to keep its bills current

16 = (Private Grant + Foundation + Gifts & Contributions Revenue - Net Income) Total Expenditures A lower percentage is better with anything below 10% considered excellent. A low percentage indicates the school is not reliant on private contributions to be viable. Grants and contributions have a limited life and can be variable. To ensure that when private contributions are not received it does not hinder the operation of the school.

17 = Unreserved Fund Balance (Total Expenditures / 12) More than one month s reserve on hand is desirable Unencumbered by anything considering reservations for deposits, prepaid assets and TABOR To determine how many months of unrestricted funds are on hand

18 = Unrestricted Cash and Investments (Operating Expenses / 365) Operating Expenses = Total Expenses Depreciation Amortization + Unrealized (Gain) or Loss + Non-Cash (Revenue) or Expenditures Banks like to see better than 60 days of operating expenses covered Does take into consideration non-cash expenses To determine how many days of unrestricted funds are on hand to cover operations and unanticipated expenses.

19 = General Fund Total Assets General Fund Total Liabilities Very similar to the Current Ratio or Working Capital Making sure the entity has more cash/current assets than it owes to vendors.

20 Debt to Asset Ratio Debt Service Coverage Ratio

21 = Total Liabilities Total Assets A quotient less than.9 is desirable This is the reverse of the current ratio or working capital ratio. A good source for these numbers is in the annual audit under the No.34 GASB Summary also known as Management s Discussion and Analysis To show how much of the school s assets are financed with debt or are obligated to a third party.

22 = Net Income Available for Debt Service Maximum Annual Debt Service Net Income Available for Debt Service = Change in Net Assets + Depreciation + Amortization + Interest on Long-Term Debt + Unrealized (Gain) or Loss + Non-Cash (Revenue) or Expenditures A quotient of 1.2 is the industry standard If you have a change in Net Assets, you generally have a positive cash flow Why is it important To determine the school s ability to service its debt.

23 Ratio analysis is very important and provides perspective when assessing financial performance. Sound and conservative budgeting will ultimately result in strong financial performance