1. Financial Health: Metrics You Need to Know
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. What will be covered Financial Statement Terminology Ratios used for:
Compliance
Daily operations
Obtaining external financing
Types of Ratios:
Performance Ratios
Viability Ratios
Debt Ratios

4. Financial Statement Terminology
Fund Balance
Current Assets
Current Liabilities
Revenues
Expenditures
Transfers
Fixed Assets
Long-Term Debt

5. The Ratios Performance Ratios Viability Ratios Debt 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. Performance Ratios Occupancy Expense 10/1 Enrollment
Change in Enrollment
Instructional Expense
Operating Reserve Ratio (ORR)
Operating Margin Ratio (OMR)
Change in Fund Balance Ratio (CFBR)
Performance Ratios

7. Occupancy Expense = 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.
Why is it important?
When financing their own facility, a higher ratio indicates resources are being pulled from the classroom.

8. 10/1 Enrollment = 10/1 Oct. Count Enrollment Adopted Budget Enrollment
10/1 Enrollment as a percentage of the school’s budgeted enrollment
Why is it important?
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. Change in Enrollment
= (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.
Why is it important?
The ratio speaks to consistency in funding. Since enrollment is the biggest driver of funding, we want to minimize attrition over time.

10. Instructional Expense
= 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
Why is it important?
Indicates a degree of efficiency when more resources are being channeled into the classroom.

11. Operating Reserve Ratio (ORR)
= 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
Why is it important?
The ratio is a measure of the school’s resources available to meet future unanticipated obligations.

12. Operating Margin Ratio (OMR)
= (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. Change in Fund Balance Ratio (CFBR)
= (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
Why is it important?
To determine whether a school’s reserves in its general fund are increasing or decreasing

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

15. Current Ratio or Working Capital Ratio
= 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
Why is it important?
To determine that the school has the ability to keep its bills current

16. Private Contributions
= (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.
Why is it important?
To ensure that when private contributions are not received it does not hinder the operation of the school.

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

18. Days Cash On Hand = 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
Why is it important?
To determine how many days of unrestricted funds are on hand to cover operations and unanticipated expenses.

19. Asset Sufficiency Ratio (ASR)
= General Fund Total Assets
General Fund Total Liabilities
Very similar to the Current Ratio or Working Capital
Why is it important?
Making sure the entity has more cash/current assets than it owes to vendors.

20. Debt to Asset Ratio
Debt Service Coverage Ratio
Debt Ratios

21. Debt to Asset Ratio = 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
Why is it important?
To show how much of the school’s assets are financed with debt or are obligated to a third party.

22. Debt Service Coverage Ratio
= 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. Summary
Ratio analysis is very important and provides perspective when assessing financial performance.
Sound and conservative budgeting will ultimately result in strong financial performance