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3.10.1

Financial Resources: Financial stability
The institution’s recent financial history demonstrates financial stability.

Judgment
  Compliant      Non-Compliant      Not Applicable

Narrative

Morehouse College is in compliance with the financial stability standard. Financial stability can be described as the ability to offer and maintain quality educational programs as economic conditions fluctuate. Morehouse College is clearly fulfilling it teaching, research and service missions. This is the strongest evidence that funding levels are adequate, although increased funding would provide opportunities to improve performance in all areas.

The recent financial history of Morehouse College demonstrates financial stability as evidenced by growth in total net assets, unrestricted net assets, market value of endowment and investments, grants and contracts revenue, and net tuition and fees revenue. Total net assets have increased from $186.3 million in fiscal 2003 to $248 million in FY07, while unrestricted net assets have increased from $118.4 million in fiscal 2003 to $135 million in FY07. The college’s endowment funds continue to grow in number and increase in total value. Increases in net tuition revenue and tuition and fee rates were realized over the last four years. Student tuition and fee revenue increased from $22.7 million in FY03 to $31.2 million in FY07, an increase of 37%. Increases in revenue have continued to offset increases in operating costs, resulting in a trend of positive financial performance. Please refer to Core Requirement 2.11 for additional information and discussion regarding financial stability.

The college has actively worked to improve recruitment and retention programs for students, continues to recruit and retain excellent faculty and staff, and increase fundraising. These efforts have resulted in the resources and support necessary to continue existing programs and develop new programs required to provide an excellent education to the institution’s students.

In addition to providing an opinion on the fairness of the presentation of the financial statements, KPMG prepares a report that provides a comprehensive list of financial ratios. These ratios are useful in assessing the financial history, as well as the financial strength and viability of the College. A summary of the financial ratios used in this regard is presented below.

MOREHOUSE COLLEGE FINANCIAL RATIOS

 

 

 

Description

Formula

Comments

 

 

 

Viability Ratio

Expendable Net Assets

 

 

Long-Term Debt

This ratio measures the availability of expendable assets to cover debt if obligations had to be settled as of the balance sheet date.

 

 

 

Return on Net Assets Ratio

Change in Net Assets

 

 

Total beginning Net Assets

This ratio measures whether the institution is financially better off by measuring total economic return.

 

 

 

Primary Reserve Ratio





Expendable Net Assets
Total Expenses

This ratio measures the financial strength of the institution by comparing expendable net assets to total expenses.

 

 

 

Net Income Ratio

Change in Unrestricted Net Assets

 

 

Total Unrestricted Income

This ratio indicates whether total unrestricted activities resulted in a surplus or a deficit.

 

 

 

Cash Income Ratio

Net Cash Provided by Operating Activities

 

Total Unrestricted Income, Excluding Grants

This ratio indicates whether unrestricted operations are generating or consuming cash.

 

 

 

Operating Income Ratio

Operating Income

 

 

Educational and General Expenses

This ratio measures the extent to which internally generated resources contribute to the overall financing of operations.

 

 

 

Contributed Income Ratio

Contributed Income

 

 

Educational and General Expenses

This ratio measures the extent to which externally generated resources other than debt contribute to the institution's overall funding.

 

 

 

Debt Burden Ratio

Debt Service

 

 

Total Expenses

This ratio examines the institutions dependence on borrowed funds as a source of financing its mission, and the relative cost of borrowing to overall expenses.

 

 

 

Debt Coverage Ratio

Adjusted Change in Net Assets

 

 

Debt Service

This ratio measures the excess of income over adjusted expenses available to cover annual debt service payments.

 

 

 

Leverage Ratio

Unrest and Temp Rest Net Assets

 

 

Debt Outstanding

This ratio measures debt in relation to the equity in the institutions capital structure.

 

 

 

Educational Core Services Ratio

Educational Core Services Expenses

 

Educational and General Income

This ratio analyzes the share of institutional resources used for educational core services.

 

 

 

Educational Support Ratio

Educational Support Expenses

 

 

Educational and General Income

This ratio analyzes the share of institutional resources used for educational support services.

 

 

 

General Support Ratio

General Support

 

 

Educational and General Income

This ratio analyzes the share of institutional resources used for general support.

 

 

 

Facilities Maintenance Ratio

Operations and Maintenance of Plant

 

Educational and General Income

This ratio analyzes the share of institutional resources used for operations and maintenance of the facilities.





 

Morehouse College Financial Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

2003

2004

2005

2006

2007

 

 

 

 

 

 

 

 

Viability Ratio

2.74

1.95

1.93

2.19

2.01

 

 

 

 

 

 

 

 

Return on Net Assets Ratio

4.33%

8.55%

3.74%

7.27%

10.24%

 

 

 

 

 

 

 

 

Primary Reserve Ratio

1.5

1.57

1.47

1.44

1.85

 

 

 

 

 

 

 

 

Net Income Ratio

0.49%

7.91%

15.67%

1.51%

3.67%

 

 

 

 

 

 

 

 

Cash Income Ratio

-0.57%

3.32%

4.80%

7.33%

4.97%

 

 

 

 

 

 

 

 

Operating Income Ratio

73.67%

80.62%

83.00%

80.76%

78.14%

 

 

 

 

 

 

 

 

Contributed Income Ratio

23.07%

23.64%

34.53%

17.25%

19.33%

 

 

 

 

 

 

 

 

Debt Burden Ratio

4.59%

4.13%

4.32%

4.23%

3.20%

 

 

 

 

 

 

 

 

Debt Coverage Ratio

2.17

4.37

6.36

2.18

3.18%

 

 

 

 

 

 

 

 

Leverage Ratio

4.22

2.90

3.09

3.43

2.54

 

 

 

 

 

 

 

 

Educational Core Services Ratio

54.14%

49.14%

46.72%

53.34%

54.10%

 

 

 

 

 

 

 

 

Educational Support Ratio

21.10%

20.47%

19.87%

21.43%

23.05%

 

 

 

 

 

 

 

 

General Support Ratio

30.70%

29.60%

22.18%

29.72%

27.32%

 

 

 

 

 

 

 

 

Facilities Maintenance Ratio

16.63%

14.94%

11.64%

16.09%

16.44%

 

 

 

 

 

 

 

 

SOURCE: KPMG Ratio Analysis for Morehouse College

 

 

 

 

 



Using the income ratio charts to assess the recent financial history of Morehouse, it is apparent that the College has been fairly consistent in generating positive results with regard to net income and cash income. The Net Income Ratio has been positive from 2003 through 2007, peaking at 15.67% in 2005. The Cash Income Ratio has been positive from 2004 through 2007, peaking at 7.33% in 2006. This performance of the College is evidence of the financial stability that has allowed the College to increase its net assets in all categories.

The College also uses the Composite Financial Index (CFI) as a comprehensive measure of its financial stability. A score of three (3.0) is considered a threshold for institutional financial health. Please refer to Core Requirement 2.11 for an in-depth discussion of Morehouse’s composite score under the CFI methodology.

 

Morehouse College Composite Score

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2003

2004

2005

2006

2007

 

 

 

Composite Financial Index (CFI)

6.68

7.23

7.07

6.47

7.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Primary Reserve Ratio **

1.5

1.57

1.47

1.44

1.86

 

Strength factor (0.133)

11.28

11.80

11.05

10.83

13.98

 

Weighted value (35%)

3.95

4.13

3.87

3.79

4.89

 

 

 

 

 

Net Income Ratio **

0.049%

7.91%

15.67%

1.51%

3.67%

 

Strength factor (0.013)

0.0377

6.08

12.05

1.16

2.82

 

Weighted value (10%)

0.0038

0.61

1.21

0.12

0.28

 

 

 

 

 

Return on Net Assets Ratio **

4.33%

8.55%

3.74%

7.27%

10.24%

 

Strength factor (0.02)

2.17

4.28

1.87

3.64

5.12

 

Weighted value (20%)

0.43

0.86

0.37

0.73

1.02

 

 

 

 

 

Viability Ratio **

2.74

1.95

1.93

2.19

2.01

 

Strength factor (0.417)

6.57

4.68

4.63

5.25

4.82

 

Weighted value (35%)

2.30

1.64

1.62

1.84

1.69

 

 

 

 

 

** Source: KPMG audit report and management letter

 


 
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