Article by Jim Pugh, James Pugh & Associates, and Mary Kay Markunas
Financially speaking, fiscal year 2018 was a good one for the independent school sector. Analysis of data in NBOA’s BIIS (Business Intelligence for Independent Schools) data-collection platform revealed improvement in schools’ tuition revenue, annual giving, operating margins and debt service coverage as compared to fiscal 2017. These findings likely reflect the stock market’s growth in the first half of 2018 and changes in the 2018 tax code that incentivized some donors to make gifts before the end of calendar 2017.
Total Net Assets increased at 71 percent of participating schools. The median increase was 5.2 percent.
Expendable Financial Resources increased at 61 percent of participating schools. The median increase was 4.7 percent. Expendable financial resources are calculated as (unrestricted net assets + temporarily restricted net assets) – (property, plant and equipment net of accumulated depreciation) + (debt – temporarily restricted net assets for capital projects)
Net Tuition Revenue increased at 75 percent of participating schools. The median increase was 3.3 percent. Net tuition revenue is calculated as gross tuition and fees minus need- and merit-based financial aid and tuition remission, even if tuition remission is properly accounted for as an employee expense in financial statements.
Annual Giving increased at 55 percent of participating schools. The median increase was 1.2 percent.
Total Gifts and Contributions increased at 55 percent of participating schools. The median increase was 6.8 percent.
Total Unrestricted Revenues increased at 70 percent of participating schools. The median increase was 3.5 percent.
Total Unrestricted Expenses increased at 72 percent of participating schools. The median increase was 3.5 percent.
Capital Spending Ratios (capital spending/depreciation) decreased at 54 percent of participating schools. The median ratio decreased from 82 percent in fiscal 2017 to 74 percent in fiscal 2018.
Debt Service Coverage increased at 55 percent of participating schools with debt. The median coverage ratio increased from 2.38 in fiscal 2017 to 2.71 in fiscal 2018.
Enrollment increased slightly at 54 percent of participating schools. Median growth was 0.36 percent. Eight percent saw no change year over year.
Operating Margins* (using the Moody’s method of calculation) improved at 55 percent of participating schools. The median increased from 1.5 percent in fiscal 2017 to 2.9 percent in fiscal 2018.
*In its method of calculating operating margins, Moody's includes revenues and expenses that are frequently handled outside a school’s operating budget. Investment income is based on a one-size-fits-all method to impute endowment income that takes the average balance of cash and investments for the three prior years (excluding funds designated for construction) and multiplies this by 5 percent. Schools that use a draw rate lower than 5 percent tend to benefit in this calculation. Total revenue is a broader set of unrestricted revenues such as gifts (including pledges in the year of receipt) that are in addition to the annual fund, and release of temporarily restricted net assets that are not related to construction expenditures or investment gains. Total expenses is a broader set of unrestricted expenses such as depreciation, expenditures from plant reserves and campaign expenses.
Jim Pugh is principal of James Pugh & Associates and will serve as interim CFO at Northfield Mount Hermon School this spring. Mary Kay Markunas is NBOA’s director, research and member resources.
A PDF of this article will be available for download in March.
