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    CU FINANCIALS EXPLAINED
    ___________
    AN ILLUSTRATED
    GUIDE
    TO THE
    ANNUAL
    FINANCIAL REPORT

INTRODUCTION

 

What is the Illustrated Guide?
Every year, CU produces an audited financial report with a vast amount of information that is very important to a number of constituencies: rating agencies, the State of Colorado, federal funding agencies, the Board of Regents, and the public. However ... providing a vast amount of information is not the same as providing easily understandable information. So the Office of University Controller decided to present the data in easy-to-understand language and charts.
Why did CU put this together?
You could call this 'financial statements made easy' ... or ... 'financial statements for the non-accountant' ... or ... 'the ABCs of CU's annual financial report'. Whatever you call it, this is our commitment to helping interested people better understand the University of Colorado's financial position. Through this website, you will see where CU holds its resources, what the claims against those resources are, and what's left over in the end.
What will I learn from this?
Along the way, we'll tell you where the University gets its money and how it spends it - in the short term and over the long haul. All of the numbers in this website are taken from CU's audited financial statements.

A FEW DEFINITIONS

Accounts Receivable - assets due the University, primarily the receivables due from students (for tuition and fees); from federal, state, and private sponsors (for research); and from patients (treated by School of Medicine faculty)

Accrued Expenses - expenses reported in the period in which they occur but for which payment is made in a subsequent period. The vast majority of the University's accrued expenses are salaries and benefits earned but not paid as of the end of the fiscal year due to the State's pay date shift (shifting the final pay date for all State employees from June 30 to July 1 of each year).

Assets - resources held by the University

Capital Assets - the University's buildings, land, equipment, library books, and other tangible assets that are used to teach students, conduct research, and handle daily operations

Compensated Absences - the dollar value of paid time off earned but not yet used by University employees (sick leave, personal leave) plus employer-related payroll taxes

Current Assets - assets expected to be used within one year (like inventories) or that will convert to cash within one year (like current investments and current accounts receivable)

Current Liabilities - liabilities that will be paid within one year

Deferred Outflows - a consumption of resources applicable to a future reporting period (these are essentially assets)

Liabilities - claims against the University's resources (assets)

Net Position - assets plus deferred outflows less liabilities (essentially, the difference between resources and claims against those resources). Net position can either be positive (usually a good thing) or negative (probably a bad thing).

Noncurrent Assets - assets that exceed the one-year time frame

Noncurrent Liabilities - claims that exceed the one-year time frame

Nonoperating Revenues and Expenses - those amounts that are not directly related to the University's primary missions but are still important drivers of its financial results (major nonoperating revenues are the federal Pell Grant, gifts, and investment income ... major nonoperating expenses are investment losses and interest expense on the University's outstanding debt)

OPEB (other postemployment benefits) - health and other benefits provided to individuals after their University employment has ended but reported as a liability in the financial statements as the benefits are earned by the still-active employees

Operating Expenses - costs incurred in fulfilling the University's primary missions (classified by function, e.g., instruction, research, health services)

Operating Revenues - revenues (money) received from what the University does as its primary missions: teach, conduct research, auxiliary enterprises, and health services

Revenue Bonds - bonds payable from revenue sources specified in the debt agreements, normally issued to fund capital improvements. Revenue sources include auxiliary services (parking, dining, housing, athletics, etc.), research services, tuition (limited to ten percent of the University's total), capital student fees, and indirect cost recoveries (funds received, typically from the federal government, to pay for certain costs of managing funded research activity)

Unearned Revenue - payments for services that have come to the University in advance of the University providing those services (e.g., summer tuition and fees paid for courses that are not completed by June 30, and payment on grants and contracts prior to the research being conducted/work being performed). Unearned revenue is treated as a liability since the University has not yet performed the work (teaching, research, etc.) needed in order to “earn” that revenue.

Balance Sheet:

Assets

Our starting point is where CU holds its resources and the claims against those resources. In the Annual Financial Report, this is reported in the Statements of Net Position, popularly known as the Balance Sheet.

 

Remember: The resources held by CU are called assets, the claims against those resources (assets) are called liabilities, and the difference between the two is called net position. Net position can either be positive (usually a good thing) or negative (probably a bad thing).

Assets and liabilities are broken into current and noncurrent. The ratio of current assets to current liabilities is one indicator of financial health. A ratio greater than 1 demonstrates an ability to pay obligations as they become due ... and is therefore favorable. The University maintained a ratio greater than 1 for the past 10 years.



Investments
 
CU holds a variety of investments to diversify risk and maintain returns. Investments are typically held until maturity - but the financial statement reflects the changes in fair value of those investments even though these changes are unrealized (CU hasn't sold the bonds so it hasn't realized the underlying gain or loss). So: investment income can swing widely from year to year depending on prevailing interest rates, significantly impacting the University's results year over year.
Capital Assets
 
Add capital assets (buildings, land, equipment, etc.) to investments and you now account for over 90% of CU's assets (resources) ... Unlike cash and investments, capital assets cannot be spent so they do not provide the cash necessary to fund University operations. In fact, as buildings age, the cost to maintain them increases, resulting in additional expense to CU.
Accounts Receivable
 
The bulk of CU's remaining assets are accounts receivable. These receivables are primarily due from students, from federal, state, and private sponsors, and from patients. Not all paymen ts owing to the University will necessarily be collected. CU estimates the dollar amount that will not be collected and records an allowance for bad debt to offset the gross amount of the receivables.

Now that we've reviewed the different types of assets, let's take a look at CU's total assets over the last 10 years ... These represent the sum of what the University owns - some of these assets (such as buildings) are recorded at historical cost - and others (such as investments) are recorded at fair value. Increases in total assets over time are generally indicative of a growing institution.

Balance Sheet:

Liabilities

Next, the Balance Sheet presents the claims on the University's assets - otherwise known as liabilities.

 

Balance Sheet:

Net Position

 

Net Position = Assets + Deferred Outflows - Liabilities

Net position is the difference between assets and deferred outflows less liabilities. Deferred outflows show consumption of resources (assets) applicable to a future reporting period.


Net position is broken down into:



1. Net investment in capital assets

CU's capital asset balance less debt issued to fund those capital assets - this is typically over 50% of CU's total net position but doesn't reflect spendable reserves.



2. Net position restricted for nonexpendable purposes

Endowments received as gifts: only the investment earnings on the gift can be spent and then only on scholarships, endowed chairs, and the like.



3. Net position restricted for expendable purposes

Entire gift can be spent, not just the investment earnings. Funds can be spent only in accordance with restrictions established by external third parties.



4. Unrestricted net position

Balances designated for use by leadership to address University needs.

What Makes Up Total Net Position

Income Statement

Now that we have covered the Balance Sheet, let's move on to the Statements of Revenues, Expenses, and Changes in Net Position, commonly referred to as the Income Statement. The Income Statement shows where the University gets its money (revenues) and how it spends its money (expenses).



The Income Statement is broken into 3 distinct sections.

 

Any Surprises here?

 

You may have noticed that State appropriations are not among the major sources of nonoperating revenue.

In total, CU receives approximately five percent of its funding from the state. Absent changes in the state's fiscal structure, this amount is expected to remain low.

Conclusion

Beyond the Bottom Line

 

Financial reporting is a funny thing.
It does a great job of placing values on investments, capital assets, debt, and all the other items in a set of financial statements. But it completely misses something else -- something essential. The worth of any university is derived from more than numbers. Financial statements do not fully reflect the quality of an institution's faculty, the innovation of its research, or the strength of its management. More significantly, financial statements do not recognize the opportunities available to the graduates who have received an outstanding education from the institution. These items cannot be quantitatively measured, but they are important nonetheless.
For a publicly traded company, the stock price gives some indication of the value shareholders place on the company's position in its market, its future product line, its reputation, and its management. For the University of Colorado, as a public institution of higher education, there are no shares of stock traded in an exchange. It is up to the readers of our Annual Financial Report and this Illustrated Guide to come to their own conclusions about the true worth of this institution.

Feedback

 

Now it is your turn.

In the introduction, we stated our goal to present the University of Colorado's financial information in an easily understandable manner through the use of this website. So, how did we do? Is there something you think should be more fully explained? Please use this feedback form to let us know!

Transparency and clarity go hand-in-hand. We've taken an initial step to providing clarity to CU's financial statements. Now it is your turn to help us make additional strides in this ongoing effort. Thanks for your time and we look forward to reporting back to you next year!

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