Guide+ +NGSRB

Financial Ratios Guide 1 F i n a n c i a l R a t i o s G u i d e Financial Ratios Guide for Non Government Schools Registration Board Visit To ensure the long term financial success of any school, it must have sufficient income to cover all expenses and loan commitments and do so consistently. Financial ratios are a tool the Non-Government Schools Registration Board use to highlight financial strengths and weaknesses in the operation of schools based on the recent audited financial reports of the school. Under the provisions of the as defined in Part V of the Education Act, the ongoing registration of a Non-Government School is contingent upon the Non-Government Schools Registration Board being satisfied that the school continues to meet the requirements for registration outlined in the Act : • the nature and content of instruction offered is satisfactory; • the school provides adequate protection for the safety, health and welfare of students; and • the school has sufficient financial resources to enable it to comply with the above in the future. The registration of each Non-Government School is to be reviewed at least once every five years however, a review of registration may occur at less than a five-yearly interval. This is at the discretion of the Board if conditions have been placed on the registration of the school. Interpretations of Ratios The mere calculation of a ratio is meaningless. It is often difficult to know whether the calculated amount of a single ratio is good or bad. It is the interpretation and presentation of significant results and trends indicated by those ratios that is of greater value. Ratios often bear some relationship to other ratios and understanding this, helps identify strengths and weaknesses. Limitation of Ratio Analysis Ratios are useful tools of analysis but judgement and caution must be exercised as by themselves, ratios are not the complete answer to questions about the performance of the school. The following points should be considered: • Ratios use accounting reports which contain historical information and do not provide information on: o Future cashflows o Cycle of school (e.g. variations in student numbers) o Planned capital expenditure (e.g. major building works to be undertaken) • It is difficult to find a benchmark that will indicate whether a result is good or bad. The fact a school is not operating near industry norms is not a certain indication that something is wrong or there could be an issue. Further investigation should follow such as trends, cycle of the school etc. and the results should be viewed in the context of the other ratios. • Analysis of accounting information identifies only symptoms, not causes, and thus it’s use in identifying the potential that problems

Guide+ +NGSRB

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