Financial Statement Analysis for Private Colleges and Universities

By Cirtin, Arnold; Lightfoot, Connie | The National Public Accountant, August 1996 | Go to article overview

Financial Statement Analysis for Private Colleges and Universities


Cirtin, Arnold, Lightfoot, Connie, The National Public Accountant


The terms "synthesis" and "analysis" are opposite in meaning, but they are often used incorrectly, sometimes interchangeably, in current English usage. In their simplest definitions, to synthesize is to put things together and to analyze is to take things apart. We are familiar with the terms "qualitative analysis" and "quantitative analysis" employed in chemistry. The former is used to identify the components of a substance, while the latter is designed to determine the amounts or proportions of the substance.

There is an almost complete analogy between scientific analysis and financial analysis. Financial analysis separates financial statements into their component parts in order for those parts to be examined. The end result of this examination is to provide information from which conclusions can be drawn in order to make managerial and financial decisions. The many users of financial statements have specific informational needs, and these needs can only be met through financial statement analysis.

Techniques for analyzing the financial statements of commercial enterprises are well established. This is not the case for non-profit entities such as colleges and universities, charities, hospitals and other non-business organizations. John Minter and Minter Associates have done some excellent work in this area. They created a data base of a national sample of institutions of higher education using audited financial statements. However, something more specialized is needed for private liberal arts colleges and universities. The purpose of this article is to respond to that need.

Fund Accounting

One reason for this disparity is the different accounting methods employed by commercial companies and academic institutions. A major goal of business entities is to earn a profit and accounting systems are designed to provide information about income earning activities and results. Of course, financial statement analysis is primarily concerned with profit making potential and future cash flows.

Conversely, goals of private colleges and universities do not include earning profits. Their goals are stewardship of the resources committed to them and the accomplishment of educational objectives. Therefore, these institutions utilize fund accounting, which focuses on the source of financial resources and how they have been used to accomplish stated objectives.

Since these entities are not profit seeking, the demand for financial statement analysis has been less pronounced than for profit-making organizations. However, a strong case can be made that private colleges and universities can benefit greatly from financial statement analysis. This article presents the practicality of ratio analysis for this group of non-profit organizations.

The Financial Statements

Private colleges and universities report their financial activities in accordance with Audits of Colleges and Universities published by the American Institute of Certified Public Accountants. The financial statements are a Balance Sheet, a Statement of Changes in Fund Balances and a Statement of Current Funds Revenues, Expenditures and Other Changes. The usefulness of these statements can be greatly enhanced by employing ratio analysis similar to that which is available to commercial companies.

A fair question is, "Why concentrate on private colleges and universities?" Unlike public universities, private institutions are hindered in their efforts to utilize ratio analysis because of differences in their accounting techniques and financial practices. They are not required to conform to particular accounting procedures, such as those required by their respective states or commissions of higher education. For this reason, financial comparisons are often meaningless.

It is often overlooked that financial ratios are completely ineffective unless compared to something, such as the ratios for the previous year or those of similar institutions. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Financial Statement Analysis for Private Colleges and Universities
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.