Academic journal article Asian Social Science

Evaluating Financial Sustainability of Higher Education Institutions

Academic journal article Asian Social Science

Evaluating Financial Sustainability of Higher Education Institutions

Article excerpt

Abstract

Economic reforms and reforms in the educational sphere have contributed to the increase of the concern towards the efficiency of the activity of educational organizations and higher educational establishments, in particular. This deals with the increased competition in both international and national markets for educational services; the growth of informational openness of higher education establishments and the enhanced role of strategic planning. All these aspects are gradually leading to a new objective that faces higher education establishments, which is a necessity to demonstrate the efficiency of their education services and support it with definite indices. Under conditions of budgetary expenditures, the problem of financial sustainability and efficiency of higher education institutions is becoming urgent, being focused on searching for possibilities to develop education establishments. In this context, the most important issue deals with developing approaches for quantifying financial sustainability and identifying the directions and means of its rise. The article suggests the method for defining the financial sustainability of higher education institutions and discusses both the indices, applied for financial sustainability evaluation, and their threshold values.

Keywords: financial stability, efficiency, education establishment, solvency, funds, budgetary funding, extra-budgetary funds

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1. Introduction

Financial sustainability will be one of the key challenges for universities in the next decade: only those institutions that have sound financial structures and stable income flows will be able to fulfil their multiple missions and respond to the current challenges in an increasingly complex and global environment. Indeed, financial sustainability is not an end in itself; it aims to ensure that university's goals are reached by guaranteeing that the institution produces sufficient income to enable it to invest in its future academic and research activities. Income diversification is a tool to achieve these goals if the conditions in which the universities operate allow and require it, taking account of the diverse contexts.

The massification of higher education, additional and tougher accountability requirements, new societal demands on institutions, and rising costs of human resources (pension costs, etc.) are only some of the triggers for increased costs that universities are confronted with.

Financial sustainability is one of the most important characteristics for evaluation of the financial situation of an establishment. Providing inventory and expenditures by the sources of their forming is the essence of financial sustainability, and solvency is its external manifestation. The ratio between inventories and sources of proprietary and borrowed funds for their forming defines a degree of financial sustainability (Stabislavchik, 2010).

The problem of financial sustainability of education establishments has recently become of a scientific interest, since Russia's economy was switched to the market principles of functioning; i.e., in the late 1980s (Belyakov, 2012). At that time, the problem was just considered as theoretically possible for the system of professional training as a result of changes in economic conditions, and no thorough analysis was done. Both the dramatic changes in economic relationships in education in the early 1990s and the cut of budgetary funding exacerbated the problem of economic sustainability. As a result, the developed suggestions were useful singularly without forming any algorithm for a goal-oriented activity.

2. Background and Methods

The financial theory considers the concept of financial sustainability as the provision of financial independence, i.e. as the provision of maintaining both the break-even point of the share of equity in the total capital and solvency to an education institution (its ability to cover its current liabilities). …

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