Appendix 2: Summary financial statements for tertiary education institutions
We put together summary financial statements using 2015 international and domestic student numbers to generate international and domestic revenues for each tertiary education institution. While this approach is not comprehensive, it uses accounting and other assumptions to show how these revenues flow through the tertiary education institution's operating and capital structure to affect the potential level of net profit, cash, and ultimately the tertiary education institution's net assets on its balance sheet.
For example, a small to moderate increase in student numbers will increase the tertiary education institution's revenues (and some associated costs). The resulting increase in net profit will increase the cash balance, total assets, and net assets. The increase in student numbers also increases the student achievement measure in our investment effectiveness formula (see paragraph 4.16).
To test whether these summary statements were reasonable, we also reviewed them with a Senior Business Analyst from the Tertiary Education Commission.
These summary statements let us see how a sector-level change could affect an individual tertiary education institution's financial position and our investment effectiveness measure. They show, for instance, that for all tertiary education institutions, an increase in student numbers will:
- increase the value of the tertiary education institution's net assets;
- increase the tertiary education institution's student achievement level (that is, increase in the number of students times the average educational performance); and
- change the effectiveness of the tertiary education institution's investments (that is, changes the result using our investment effectiveness measure).
Because every tertiary education institution has a different operating and capital structure, increasing student numbers will affect the investment effectiveness of individual tertiary education institutions in different ways.
Figure 12 uses two tertiary education institutions – Christchurch Polytechnic Institute of Technology (CPIT) and Wellington Institute of Technology (Weltec) – to summarise the differences in investment effectiveness arising from a 5% increase in student numbers.
Increase in investment effectiveness by increasing student numbers
|Christchurch Polytechnic Institute of Technology||Wellington Institute of Technology|
|Actual (2014/15)||Actual + 5%||Change||Actual (2014/15)||Actual + 5%||Change|
|Equivalent full-time students||6,440||6,762||322
|Average fees per student $000||$14.11||$14.11||$11.64||$11.64|
|Student revenue $000||$90,841||$95,383||$4,542||$46,214||$48,525||$2,311|
|Plus Other revenue $000||$23,637||$23,745||$10,797||$10,850|
|Equals Total revenue $000||$114,478||$119,128||$57,011||$59,375|
|Less Total expenses $000||$95,251||$95,589||$55,856||$56,114|
|Equals Net Income $000||$19,227||$23,539||$4,312||$1,155||$3,261||$2,106|
|Total assets $000||$290,468||$294,780||$95,252||$97,358|
|Less Total liabilities $000||$22,399||$22,399||$17,340||$17,340|
|Equals Net assets $000||$268,069||$272,381||$4,312||$77,912||$80,018||$2,106|
|Average educational outcome||0.51||0.51||0.44||0.44|
|Investment effectiveness $000||$268,069/ [0.51 x 6,440] = $82||$272,381/[0.51 x 6,762] = $79||-3
|$77,912/[0.44 x 3,970] = $44||$80,018/[0.44 x 4,169] = $43||-1
|Impact on the effectiveness of the investment||Improves (the cost is lower)||Improves (the cost is lower)|
Figure 12 focuses on the revenue and cash implications of a 5% increase in student numbers. We assume over the one-year period of our analysis that 30% of operating expenses (excluding depreciation and employee benefits) will increase as revenue increases, any additional net income can be invested at 5% each year, and the increase in students will not require any material changes in the tertiary education institution's asset base. These assumptions may change over time and with each tertiary education institution.
The analysis shows that CPIT's investment effectiveness is more sensitive to changing student numbers than Weltec's. A 5% increase in student numbers improves the investment effectiveness of CPIT and Weltec by 3.2% and 2.2%, respectively. One important factor affecting this sensitivity is the ratio of net assets to students – CPIT's ratio is higher than Weltec's.