Comparison of Benchmark Audited Financial Statements
Cabinet, Academic Department Heads, Committee on Administrative and Financial Policy, Executive Staff
From: Edward Alton Parrish, President
Subject: Comparison of Benchmark Audited Financial Statements
Date: February 21, 2002
As was begun last year, I would like to compare WPI’s performance to that of several other institutions of interest. I have prepared this memorandum based upon data I asked Mr. Frank Conti, Controller, to once again gather. The data presented are in the form of various financial ratios and compare performance over the four-year period from FY 98 through FY 01.
The particular comparative ratios presented are divided into two sections: Operating Ratios and Financial Strength Ratios. In what follows, a brief description of each ratio is given, while individual tables in the Appendix contain the actual numeric data. A Glossary is included herewith as an appendix that defines the terms relevant to this report.
These ratios can be examined to verify that WPI is living within its means. In addition, they show how our resources are being used to provide service to our faculty, staff, students, and alumni.
- Operating Revenue Ratio: This ratio is a useful measure of how heavily an institution depends upon net tuition and fees to cover its operating expenses. In our case, this dependency is relatively high and is related to the strategic tuition increases in the previous two years. As expected, the Capital Campaign and associated increases in the Annual Fund did keep the dependency from increasing and, in fact, this ratio shows a decline since FY 99. Nevertheless, with the sudden upward surge in demand for financial aid this past fall I expect this trend will not continue in FY 02. We remain more or less in alignment with all but Amherst, which is the outlier among these institutions and included just to show how a highly selective liberal arts college fares in such financial comparisons.
Operating Revenue /
Education & General Expense
2001 2000 1999 1998 Amherst College 46.49% 49.75% 52.08% 42.64% Boston University 92.63% 96.03% 94.37% 95.94% Carnegie Mellon 84.30% 83.10% 81.22% 83.38% Clarkson University 74.74% 79.03% 76.48% 78.85% Drexel University 96.05% 86.97% 88.10% 89.37% Rensselaer Polytechnic Institute 80.68% 80.20% 80.73% 85.32% Rochester Institute of Technology 82.77% 80.02% 88.88% 96.39% Worcester Polytechnic Institute 79.37% 81.94% 83.29% 79.07%
- Tuition Discount Ratios: As we know, tuition discounting has become a major problem for many private institutions, WPI among them. A few years ago, financial aid was increasing much faster than tuition, a situation that was not sustainable. Through several measures, this trend was reversed but, as I stated above, warning signs have returned and so will require close attention in the future. The first ratio reflects discounting from all sources, including "soft money" derived from the endowment and directed gifts. The second ratio is indicative of the true discounting, as these dollars are lost tuition. We appear to be in very good position in these comparisons. It will be a challenge to sustain this condition, especially given the sudden state of our economy.
Tuition Discount Ratios A. Total Financial Aid /
Tuition and Fees
2001 2000 1999 1998 Amherst College 50.11% 41.18% 42.61% 41.84% Boston University 38.00% 39.01% 38.97% 39.04% Carnegie Mellon 00.00% 00.00% 00.00% 00.00% Clarkson University 47.72% 49.04% 47.84% 45.99% Drexel University 37.92% 41.73% 40.40% 38.27% Rensselaer Polytechnic Institute 30.91% 30.22% 29.48% 28.44% Rochester Institute of Technology 42.07% 45.85% 42.29% 37.40% Worcester Polytechnic Institute 34.63% 34.02% 34.29% 36.24% B. Unrestricted Financial Aid /
Tuition and Fees
2001 2000 1999 1998 Amherst College 50.11% 41.18% 42.61% 41.84% Boston University 38.00% 39.01% 38.97% 39.04% Carnegie Mellon 00.00% 00.00% 00.00% 00.00% Clarkson University 46.48% 48.04% 46.80% 44.87% Drexel University 34.92% 37.45% 36.46% 34.21% Rensselaer Polytechnic Institute 26.15% 25.88% 24.54% 23.24% Rochester Institute of Technology 42.07% 45.85% 42.29% 37.40% Worcester Polytechnic Institute 23.26% 25.43% 26.14% 27.03%
- Net Operating Income Ratios: Here we are looking at the surplus (or deficit) in operations both with and without investment income and contributions. In the first case, except for Amherst we see that tuition and fees alone are not sufficient to cover operating expenses; few institutions are able to do so. In fact, this demonstrates the "subsidy" provided to all students, since our "price" is less than our "cost," a situation not sustainable in industry. The second ratio shows that we are living within our means and have consistently ended the year with a balanced budget or small surplus, per the Board’s direction.
Net Operating Income Ratio A. Net Operating Without Investment Income and Contributions /
Total Operating Revenue
2001 2000 1999 1998 Amherst College 55.59% 56.20% 56.69% 55.93% Boston University -6.38% 0.65% -4.83% -3.44% Carnegie Mellon -22.59% -18.29% -22.35% -17.88% Clarkson University -19.14% -14.36% -19.94% -14.69% Drexel University -3.49% -11.97% -10.64% -7.55% Rensselaer Polytechnic Institute -16.81% -16.47% -16.28% -12.20% Rochester Institute of Technology -14.12% -10.21% -9.07% -2.79% Worcester Polytechnic Institute -20.45% -17.92% -16.25% -19.71% B. Net Operating Income /
Total Operating Revenue
2001 2000 1999 1998 Amherst College 00.00% 00.00% 00.00% 00.00% Boston University 00.94% 6.59% 1.45% 2.66% Carnegie Mellon 00.32% 2.16% 00.47% 2.48% Clarkson University -2.77% 3.34% -0.23% -4.13% Drexel University 4.78% 00.92% 3.04% -0.62% Rensselaer Polytechnic Institute 7.90% 5.10% 3.22% 2.97% Rochester Institute of Technology 3.47% 4.84% 3.68% 8.45% Worcester Polytechnic Institute 10.73% 1.41% 1.32% 1.53%
- Expendable Net Assets Ratio: This ratio is a measure of financial flexibility should we suffer a downturn in our revenues. Given what happened this spring in our continuing education programs, this is extremely important. As can be seen, our expendable net assets have increased faster than the increases in our operating expenses each year. We suffered along with others, but still trail only Amherst College in this regard, a rather remarkable position.
Unrestricted Net Assets Less
Net Investment In Plant/
Total Operating Expenses plus
Debt Service Principal
2001 2000 1999 1998 Amherst College 257% 288% 157% 342% Boston University -29% -19% -30% -34% Carnegie Mellon 84% 103% 99% 93% Clarkson University 68% 100% 100% 102% Drexel University 57% 63% 66% 40% Rensselaer Polytechnic Institute 149% 203% 147% 142% Rochester Institute of Technology 119% 154% 135% 127% Worcester Polytechnic Institute 175% 224% 185% 176%
- Debt Service Ratios: The first ratio measures the impact of debt on the operating budget. Clearly, the higher the ratio the more is expended on debt service as opposed to other needs. It also suggests less flexibility in tight times. As a guideline, this ratio should be kept with the range of five to ten percent. As can be seen, we fall at the lower end of this range and, in fact, the ratio has not increased over the period under review. The second ratio, called the debt coverage ratio, represents our ability to meet our obligations from our operating revenue; ideally, we would prefer to see a figure of 100% or greater. In recent years, additional debt was undertaken to finance renovation of several residence halls as well as to help fund the Campus Center, although associated increases in room rates and fees cover the additional debt service. This had been our weakest relative position, but some dramatic changes have occurred.
Debt Service Ratio A. Annual Service Debt /
Operating Expenses plus
Debt Service Principal
2001 2000 1999 1998 Amherst College 5.09 5.36% 10.78% 28.42% Boston University 4.81% 9.48% 6.23% 3.50% Carnegie Mellon 4.36% 3.00% 2.35% 1.71% Clarkson University 4.15% 6.57% 2.87% 3.22% Drexel University 12.66% 7.97% 7.89% 5.59% Rensselaer Polytechnic Institute 4.77% 5.08% 6.86% 6.44% Rochester Institute of Technology 2.68% 2.57% 2.33% 3.69% Worcester Polytechnic Institute 5.20% 5.20% 5.76% 5.86% B. Operating Surplus plus
Interest Expenses /
Annual Debt Service
2001 2000 1999 1998 Amherst College 26% 2507% 449% 111% Boston University -78% 190% 164% 293% Carnegie Mellon 53% 152% 90% 227% Clarkson University -571% 191% 139% 474% Drexel University 56% 136% 476% 151% Rensselaer Polytechnic Institute -917% 1452% 385% 353% Rochester Institute of Technology -707% 1186% 793% 529% Worcester Polytechnic Institute 248% 89% 89% 90%
Financial Stregnth Ratios
These ratios provide information about the long-term viability of WPI. Of particular importance are the size of the endowment relative to debt and other ongoing expenses.
- Endowment Ratio: This ratio measures our financial strength in terms of the ability of our endowment to help meet operating costs should revenues decline unexpectedly. As can be seen, we have a strong position due to the performance of our investments and to the Capital Campaign, despite the poorer returns recently. In fact, WPI remains second only to Amherst College.
Total Endowment /
Total Operating Expenses
2001 2000 1999 1998 Amherst College 1033% 1127% 770% 643% Boston University 64% 97% 70% 66% Carnegie Mellon 151% 180% 169% 160% Clarkson University 131% 169% 171% 171% Drexel University 107% 123% 121% 92% Rensselaer Polytechnic Institute 227% 283% 223% 217% Rochester Institute of Technology 203% 256% 238% 225% Worcester Polytechnic Institute 315% 399% 329% 314%
- Unrestricted to Total Endowment Ratio: That portion of our endowment that is restricted by donors is not available to us for other purposes. Thus, this ratio examines the percent of our endowment that is unrestricted and in dire circumstances could be used to offset budgeted expenses or otherwise in a discretionary manner to meet operating needs; the higher the ratio, the more the flexibility. As can be seen, more than half of our endowment is in this category, which is a strong position.
Funds Functioning as Endowment /
2001 2000 1999 1998 Amherst College 31.80% 29.33% 29.69% 30.70% Boston University 100.00% 100.00% 100.00% 100.00% Carnegie Mellon 37.82% 37.17% 35.03% 35.80% Clarkson University 57.90% 65.13% 64.62% 65.40% Drexel University 56.79% 54.57% 55.58% 42.80% Rensselaer Polytechnic Institute 67.93% 70.57% 67.14% 64.76% Rochester Institute of Technology 54.28% 56.06% 52.58% 52.63% Worcester Polytechnic Institute 54.90% 55.73% 55.54% 55.53%
- Endowment per FTE Student and per Undergraduate Student: These ratios express the endowment in terms of the number of students; the higher the ratios the greater the flexibility we have. Both measures place WPI in a good position relative to most other institutions nationally, and still trails only Amherst and CMU in this particular group. As can be seen, in all cases both ratios have been impacted by the turn in the economy.
Endowment per FTE Student and Undergraduate Student A. Total Endowment /
Number of FTE Students
2001 2000 1999 1998 Amherst College 529,436 544,716 383,163 328,346 Boston University -- -- -- -- Carnegie Mellon 124,229 136,185 121,838 112,820 Clarkson University 31,824 38,772 36,913 37,821 Drexel University 20,366 21,462 21,373 14,893 Rensselaer Polytechnic Institute 81,993 100,803 75,914 70,967 Rochester Institute of Technology 45,845 56,894 52,255 46,934 Worcester Polytechnic Institute 98,060 114,757 84,014 76,693 B. Total Endowment /
Number of Undergraduate Students
2001 2000 1999 1998 Amherst College 533,240 548,317 385,725 330,760 Boston University -- -- -- -- Carnegie Mellon 148,243 161,433 143,864 132,851 Clarkson University 35,360 42,542 40,618 41,719 Drexel University 20,697 22,493 22,629 16,275 Rensselaer Polytechnic Institute 112,797 137,387 102,385 96,261 Rochester Institute of Technology 46,269 55,826 50,514 45,711 Worcester Polytechnic Institute 120,491 139,804 101,158 92,569
- Total Debt to Expendable Unrestricted Net Assets: This is a measure of our ability to meet our debt service using only unrestricted net assets. Like other institutions, WPI has found it beneficial to borrow using tax-exempt vehicles rather than using such assets that can yield higher returns from our investments. Nevertheless, we do not want to be highly leveraged as this affects our bond rating and other financial measures. As a guideline, most institutions prefer to maintain this ratio below about 50 percent. Last year we saw an increase in our debt to accommodate renovations (e.g., Olin 107) and some network upgrades. Nevertheless, WPI is in a very strong position and continues to receive outstanding ratings by financial institutions.
Total Debt to Expendable unrestricted Net Assets Net Operating Without
Investment Income and Contributions /
Total Operating Revenue
2001 2000 1999 1998 Amherst College 37.57% 36.18% 61.05% 80.59% Boston University 212.93% 155.92% 184.77% 222.44% Carnegie Mellon 62.49% 59.05% 66.92% 48.89% Clarkson University 81.68% 55.41% 64.31% 30.62% Drexel University 80.95% 76.36% 78.07% 110.84% Rensselaer Polytechnic Institute 15.05% 22.13% 35.41% 36.80% Rochester Institute of Technology 27.13% 11.05% 10.47% 11.44% Worcester Polytechnic Institute 30.98% 27.84% 39.51% 45.03%
- Increase in Net Assets Ratio: This is a measure of our total equity and is a very useful measure to compare against inflation. The extent to which our net assets grow faster than inflation suggests real growth in our financial resources. As can be seen, until the impact of the economy on our position last year, our ratios had been much greater than inflation; we still compare favorably among this group of institutions.
Increase in Net Assets Total Indrease in Net Assets /
Total Net Assets Beginning Balance
2001 2000 1999 1998 Amherst College -1.6% 39.72% 14.43% 15.10% Boston University -29.12% 32.36% 17.24% 17.01% Carnegie Mellon -6.58% 6.70% 5.35% 7.10% Clarkson University -10.59% 5.86% 2.59% 8.32% Drexel University 3.02% 8.11% 34.79% 13.16% Rensselaer Polytechnic Institute -14.65% 29.38% 12.98% 10.54% Rochester Institute of Technology -6.98% 13.55% 8.06% 8.40% Worcester Polytechnic Institute -9.92% 30.36% 15.26% 21.17%
- Total Return on Long-Term Investments: The goal of the Board’s Investment Committee is prudent management of our endowment to produce long-term growth. At the same time, it is recognized that some portion of the earnings needs to be used to support operations; otherwise, tuition would have to be considerably higher to cover operating expenses. Thus, the Board has adopted a spending rule that directs 5.5 percent of the unrestricted portion of the endowment averaged over the previous two years, one year removed, into each fiscal year’s operating budget. This is consistent with most other institutions, which apply between four and six percent of some moving average to operations. Along with all other institutions in this group, we suffered losses on our investments in FY 01. Nevertheless, our portfolio continues to be managed well and we expect positive returns as the economy improves.
Total Return Long Term Investments Investment Income plus
Realized & Unrealized Gains /
Average Long Term Investments
for the Period
2001 2000 1999 1998 Amherst College -6.2% 34.61% 15.12% 15.09% Boston University -29.12% 32.36% 17.24% 17.01% Carnegie Mellon -6.82% 8.08% 8.63% 6.25% Clarkson University -10.49% 9.77% 7.29% 17.54% Drexel University -6.20% 12.67% 15.98% 21.52% Rensselaer Polytechnic Institute -13.14% 32.99% 15.19% 14.52% Rochester Institute of Technology -9.28% 18.54% 14.61% 13.81% Worcester Polytechnic Institute -12.39% 32.37% 10.79% 15.48%
Glossary of Terms
To provide a framework for financial reports of nonprofit organizations, FASB developed a Statement of Financial Accounting Concepts (SFAC) No. 6, "Elements of Financial Statements" in which it defined appropriate elements for use. These elements and their definitions are quoted below:
- Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
- Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
- Equity or net assets is the residual interest in the assets of an entity that remains after deducting its liabilities.
- Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
- Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.
- Gains are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from revenues or investments by owners.
- Losses are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity except those that result from expenses or distributions to owners.
SFAC No.6 breaks the element net assets into three categories whose characteristics are determined by the presence or absence of donor-imposed restrictions. These are quoted below:
- Permanently restricted net assets is the part of net assets of a nonprofit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization, (b) from other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) from reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations.
- Temporarily restricted net assets is the part of net assets of a nonprofit organization resulting (a) from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization pursuant to those stipulations, (b) from other asset enhancements and diminishments subject to the same kinds of stipulations, and (c) from reclassifications to (or from) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or fulfillment and removal by actions of the organization pursuant to those stipulations.
- Unrestricted net assets is the part of net assets of a nonprofit organization that is neither permanently restricted nor temporarily restricted by donor-imposed stipulations—that is, the part of net assets resulting (a) from all revenues, expenses, gains, and losses that are not changes in permanently or temporarily restricted net assets and 9b) from reclassifications from (or to) other classes of net assets as a consequence of donor-imposed stipulations, their expiration by passage of time, or their fulfillment and removal by actions of the organization pursuant to these stipulations. The only limits on unrestricted net assets are broad limits resulting from the nature of the organization and the purposes specified in its articles of incorporation (or comparable document for an unincorporated association) or bylaws and perhaps limits resulting from contractual agreements - for example, loan covenants - entered into by the organization in the course of its operations.