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Appendix B: Ratio Methodology for Private Non-Profit Institutions

SECTION 3: Example Financial Statements and Composite Score Calculations

Line Line

1 Cash and cash equivalents 1,720,000 Changes in Net Assets Without Donor Restrictions

2 Accounts receivable, net 6,000,000 Operating Revenue and Other Additions:

3 Prepaid expenses 1,900,000 33 Tuition and fees, net 43,200,000

4 Related party receivable 100,000 34 Contributions 1,200,000

5 Contributions receivable, net 2,000,000 35 Investment return appropriated for spending 200,000

6 Student loans receivable, net 8,000,000 36 Auxiliary enterprises 7,000,000

7 Investments 6,000,000 37 Net assets released from restriction 500,000

8 Property, plant and equipment, net 40,000,000 38 Total Operating Revenue and Other Additions 52,100,000

9 Lease right-of-use asset, net 10,000,000 Operating Expenses and Other Deductions:

10 Goodwill 500,000 39 Education and research expenses 38,000,000

11 Deposits 20,000 40 Depreciation and Amortization 5,000,000

12 Total Assets 76,240,000 41 Interest expense 2,880,000

42 Auxiliary enterprises 5,200,000

13 Line of credit - short term 300,000 43 Total Operating Expenses 51,080,000

14 Accounts payable 1,000,000 44 Change in Net Assets from Operations 1,020,000

15 Accrued expenses 3,500,000 Non-Operating Changes 

16 Deferred revenue 650,000 45 Investments, net of annual spending, gain (loss) (600,000)

17 Post-employment and pension liability 6,600,000 46 Other components of net periodic pension costs (1,000,000)

18 Line of credit - operating 200,000 47 Pension-related changes other than net periodic pension costs (350,000)

19 Other liabilities 1,000,000 48 Change in value of split-interest agreements (80,000)

20 Notes payable 24,000,000 49 Other gains (losses) (70,000)

21 Lease right-of-use asset liability 10,000,000 50 Sale of fixed assets, gains (losses) 1,000,000

22 Line of credit for long term purposes 2,000,000 Total Non-Operating Changes (1,100,000)

23 Total Liabilities 49,250,000 51 Change in Net Assets Without Donor Restrictions (80,000)

24 Net Assets without Donor Restrictions 15,190,000 Change in Net Assets With Donor Restrictions

Net Assets with Donor Restrictions 52 Contributions 400,000

25 Annuities 300,000 53 Net assets released from restriction (500,000)

26 Term endowments 50,000 54 Change in Net Assets With Donor Restrictions (100,000)

27 Life income funds 150,000

28 Other restricted by purpose and time 2,500,000 55 Change in Net Assets (180,000)

29 Restricted in perpetuity 8,800,000

30 Total Net Assets with Donor Restrictions 11,800,000 56 Net Assets, Beginning of Year 27,170,000

31 Total Net Assets 26,990,000

31 Net Assets, End of Year 26,990,000

32 Total Liabilities and Net Assets 76,240,000

STATEMENT OF FINANCIAL POSITION STATEMENT OF ACTIVITIES
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Appendix B: Ratio Methodology for Private Non-Profit Institutions

Calculating the Composite Score

Lines

Primary Reserve Ratio = Expendable Net Assets

31-29-(25+26+27)-

10-(8+9)+17 

+(20+21+22) -4 9,690,000

 / Total expenses and Losses Without Donor 

Restrictions 43 +46 +48 +49 52,230,000

Equity Ratio = Modified Net Assets 24 +30 -10 -4 26,340,000

 / Modified assets 12 -10 -4 75,590,000

Net Income Ratio = Change in Net Assets without 

Donor Restrictions 51 (80,000)

Total Revenue and Gains Without Donor 

Restrictions 38 -35 +50 52,900,000

Step 1: Calculate the strength factor score for each ratio by using the following algorithms:

 Primary Reserve strength factor score = 10 x the primary reserve ratio result

 Equity strength factor score = 6 x the equity ratio result

 Negative net income ratio result: 

Net Income strength factor = 1 + (25 x net income ratio result)

 Positive net income ratio result:

Net income strength factor = 1 + (50 x net income ratio result)

 Zero result for net income ratio:

Net income strength factor = 1

If the strength factor score for any ratio is greater than or equal to 3, the strength factor score for the ratio is 3.

If the strength factor score for any ratio is less than or equal to -1, the strength factor score for the ratio is -1.

Step 2: Calculate the weighted score for each ratio and calculate the composite score by adding the three weighted scores

 Primary Reserve weighted score = 40% x the primary reserve strength factor score

 Equity weighted score = 40% x the equity strength factor score

 Net Income weighted score = 20% x the net income strength factor score

 Composite Score = the sum of all weighted scores

 Round the composite score to one digit after the decimal point to determine the final score

RATIO Ratio

Strength 

Factor Weight Composite Scores

Primary Reserve Ratio 0.1855 1.8553 40% 0.7421

Equity Ratio 0.3485 2.0908 40% 0.8363

Net Income Ratio (0.0015) 0.9622 20% 0.1924

1.7708

TOTAL Composite Score - Rounded 1.8

0.1855

0.3485

(0.0015)
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Appendix B: Ratio Methodology for Private Non-Profit Institutions