Fiscal Management: Activity 5:Financial Ratios

Part One: The Worksheet below can be used to assist your school
with the calculation of a composite score 668.172:

Proprietary School:

STEP ONE: CALCULATE THE RATIOS

Ratio Fo r m u l a Result
Primary Reserve
Ratio Adjusted Equity ________________________
Total Expenses

Equity Ratio
Modified Equity ________________________
Modified Assets

Net Income Ratio

Income Before ________________________
Taxes
Total Revenues

STEP TWO: C A L C U L AT E T H E S T R E N G T H FA C T O R
SCORE

P r i m a r y Re s e r v e S t re n g t h Fa c t o r S c o re = Re s u l t :
2 0 X * P r i m a r y Re s e r v e Ra t i o
E q u i t y S t re n g t h Fa c t o r S c o re = 6 X E q u i t y Re s u l t :
Ra t i o
N e t I n c o m e S t re n g t h Fa c t o r S c o re = 1 + Re s u l t :
( 3 3 . 3 X N e t I n c o m e Ra t i o )

N o t e : I f t h e s t re n g t h f a c t o r s c o re f o r a n y r a t i o i s g re a t e r
t h a n o r e q u a l t o 3 , t h e s t re n g t h f a c t o r s c o re f o r t h a t
r a t i o i s 3 . I f t h e s t re n g t h f a c t o r s c o re f o r a n y r a t i o i s
l e s s t h a n o r e q u a l t o – 1 , t h e s t re n g t h f a c t o r s c o re f o r
that ratio is –1

STEP THREE: CALCULATE THE WEIGHTED SCORE

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Fiscal Management: Activity 5:Financial Ratios

P r i m a r y Re s e r v e We i g h t e d S c o re = 3 0 % X Re s u l t :
P r i m a r y Re s e r v e S t re n g t h Fa c t o r S c o re
E q u i t y We i g h t e d S c o re = 4 0 % X E q u i t y S t re n g t h Re s u l t :
Fa c t o r S c o re
N e t I n c o m e We i g h t e d S c o re = 3 0 % X N e t I n c o m e Re s u l t :
S t re n g t h Fa c t o r S c o re

STEP FOUR: CALCULATE THE COMPOSITE SCORE

Sum of All weighted Scores in STEP THREE above:

_______________________________________

Round the composite score 0 one digit after the decimal point
to determine the final score.

Financial Responsibility Composite Score Scale:

1.5 to In the “Zone.” Financial Responsibility without further

3.0 oversight
1.0 to In the “Zone.” The school is considered financially responsible
1.4 but additional oversight is required
-1.0 to Financially responsible if the school meets the 50% or greater
.9 letter of credit alternative.

*The symbol “X” denotes multiplication

The definition of terms used in the ratios and the applicable

strength factor algorithms and weighting percentages are
found in Appendix A, Subpart L, of the General Provisions for
proprietary schools.

Private Non-profit School

STEP ONE: CACLULATE THE RATIOS

Ratio Fo r m u l a Result
Primary Reserve
Ratio Expendable Net ________________________
Assets
Total Expenses

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Fiscal Management: Activity 5:Financial Ratios

Equity Ratio
Modified Net Assets ________________________
Modified Assets

Net Income Ratio

Change in ________________________
Unrestricted Net
Assets
Total Unrestricted
Assets

STEP TWO: C A L C U L AT E T H E S T R E N G T H FA C T O R
SCORE

P r i m a r y Re s e r v e S t re n g t h Fa c t o r S c o re = Result:
1 0 X * P r i m a r y Re s e r v e Ra t i o Re s u l t
E q u i t y S t re n g t h Fa c t o r S c o re = 6 X E q u i t y Result:
Ra t i o Re s u l t
N e t I n c o m e S t re n g t h Fa c t o r S c o re = ( I F Result:
N E T I N C O M E RAT I O I N S T E P O N E I S
POSITIVE), use this formula: 1 + (50 X Net
I n c o m e Ra t i o Re s u l t )
(IF THE NET INCOME RATIO IN STEP ONE IS 0) then
the Strength Factor Score =1
(IF THE NET INCOME RATIO IS STEP ONE IS
NEGATIVE), use this formula: 1 + (25 X Net Income
Ratio Result)

N o t e : I f t h e s t re n g t h f a c t o r s c o re f o r a n y r a t i o i s g re a t e r
t h a n o r e q u a l t o 3 , t h e s t re n g t h f a c t o r s c o re f o r t h a t
r a t i o i s 3 . I f t h e s t re n g t h f a c t o r s c o re f o r a n y r a t i o i s
l e s s t h a n o r e q u a l t o – 1 , t h e s t re n g t h f a c t o r s c o re f o r
that ratio is –1

STEP THREE: CALCULATE THE WEIGHTED SCORE

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Fiscal Management: Activity 5:Financial Ratios

P r i m a r y Re s e r v e We i g h t e d S c o re = 4 0 % X Result:
P r i m a r y Re s e r v e S t re n g t h Fa c t o r S c o re

E q u i t y We i g h t e d S c o re = 4 0 % X E q u i t y S t re n g t h Result:
Fa c t o r S c o re

N e t I n c o m e We i g h t e d S c o re = 2 0 % X N e t I n c o m e Result:
S t re n g t h Fa c t o r S c o re

STEP FOUR: CALCULATE THE COMPOSITE SCORE

Sum of All weighted Scores in STEP THREE above:

Round the composite score 0 one digit after the decimal point
to determine the final score

Financial Responsibility Composite Score Scale:

1.5 to In the “Zone.” Financial Responsibility without further

3.0 oversight
1.0 to In the “Zone.” The school is considered financially responsible
1.4 but additional oversight is required
-1.0 to Financially responsible if the school meets the 50% or greater
.9 letter of credit alternative.

*The symbol “X” denotes multiplication

The definition of terms used in the ratios and the applicable

strength factor algorithms and weighting percentages are
found in Appendix B, Subpart L, of the General Provisions for
Private Non-profit schools.

Part Two - Policies & Procedures:

Responsibility Office Requirement

responsible Met? Yes/ No

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Fiscal Management: Activity 5:Financial Ratios

Who is responsible for ensuring that

ratios are calculated correctly at your
school?

Where is the documentation needed for

the calculation kept?

Is the documentation used to calculate

the ratios kept on file in case of audit or
program review questions?

For further information regarding the calculation of your

composite scores, please contact your CASE MANAGEMENT
TEAM using our Technical Assistance Resources

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