Financial Analysis of Lee College, Essay Example

Introduction

The financial health of an organization is the function of various determinants. The determinants range from positive profits and funds availability to spend on running expenses. Furthermore, increase in assets is a strong indicator of sound financial health. Viewed from the perspective of goodwill and fame, volume of grants indicates the favourable image in the context of an educational institute. Since educational institutes are service organizations and playing their role in establishment of foundation of a nation, they often enjoy goodwill and receive heavy grants from gentry of the nation.

Many educational institutes are running on non-commercial basis which makes them favourable in the eyes of donor. Their accounting statements are regularly and transparently shared with donors and other funding agencies to give a clear idea about their possible expenses and expenses earnings. Expenses are expected to be met through donations and supports. It is quite possible that grants and government spending are the two major sources of funds for educational institutes. If their revenues cannot meet their expenses, they still do not go in losses because of heavy and regular grants received from various donors. These funds serve as support to the organization and most often are helping hands to ensure their sustainability. This statement provides data concerning change in asset of the organization, income, expenses and level of liquidity for the organization. These are some of the most important indicators of financial health among non-profit making organization.

Below is the analysis of the financial statements of LEE College

Net Assets

Since LEE College is a Non-Profit organization, change in asset is an indicator of financial health of the organization. Change in asset can be negative or positive, depending upon the use of assets and how the organization manages their resources. Positive change in asset indicate that the value of revenue was greater that the value of expenses in that accounting period, whereas a negative change in assets indicates that the value of expenses was greater than the value of revenue for that particular accounting period.

We have observed that LEE College has a positive change in assets, wherein net assets in the beginning were 3000000, which have increased by 4920000, to 7920000. This is due to the fact that the institution has more revenues in comparison to expenses as shown in the table. Therefore the institution is in a good financial position to meet its financial obligations.

Also we can see that the institution has been able to release assets worth 1800000 from temporary restrictions, it means it has been able to satisfy conditions of the donors and thus this also leads to increase in credibility of the institution among donors.

Income

Income for not- for- profit organizations is obtained from two major sources. These include; earned revenues and contributions. A non-profit organization is said to be in a good financial position if it has a good portion of its income from earned revenues. Earned revenues are the revenue/income generated by the institution from income generating activities. As it is seen from the financial statements of LEE College, it has earned revenues in the form of tuition fees, sales and services of auxiliary enterprise and gain from investments which are 11200000, 5000000 and 750000 respectively, amounting to total of 16295000, which is 73.79% of the total income of the institution. Since the big portion of income being earned revenues, the institution has greater control over its operations as most

Of its activities are not dependent upon contributions/grants etc. Contributions refer to the income from donations/grants made by external organizations for various purposes, which in case of LEE College are grants received. Thus the institution has a higher portion of its income from earned revenues; it has the ability to meet its financial obligations on its own.

It is apparently seen that LEE college has diversified sources of income therefore it is less prone to financial risks, as the institution with diversified sources of income does not rely upon single or a few sources of income and thus in cases where one of the sources of income are not generating revenues, financial position can be sustained with the revenue from other sources of income. LEE College has achieved this position as it has different sources of income like tuition fees, auxiliary enterprises, grants and contributions and endowment investment incomes.

Expenses

Expenses are incurred for carrying out day to day activities i.e. core activities and also various types of activities as and when required. Expenses must be incurred for the purpose of activities related to the institution. There should be proper use of funds for expenses and there should not any wasteful expenses or misappropriation of funds. It is observed that most of the expenses of Lee College are done for performing operational activities and core activities of the institution such as public service, research, instruction and student services. Thus the management has been able to keep a proper check of spending for expenses and there have not been any misuse of funds in the institution.

Liquidity

Liquidity refers to the ability of the organization / institution to pay short term expenses and liabilities using its current assets. Organizations must have sufficient liquidity so as to have proper funds for meeting its expenses and operational needs. As per the statement of activities and change in net assets, it has been observed that Lee College has been able to maintain a good liquidity, as the net assets of the institution have increased. Lee College has freed most of its assets from restriction. Thus Lee College can use such assets in regular use of operations of the institutions which will enhance the liquidity levels of the college.

Conclusion

We have analysed the financial statements of Lee College by preparing the Statement of activities, revenues, expenses and change in net assets, and thus arrived at the conclusion that the institution has net revenue higher than the expenses for the period. It has been noted that the institution is able to generate income/revenues from earned resources, which is a sign of good financial condition of the institution. Also expenses have been carried out without any misappropriation and for the operational activities only. In regards to the net assets, the institution has been able to free its assets from restrictions, and now in a position to use them for operational use and generate revenues. Also there is an increase in net assets and liquidity is in a better condition which shows us the good financial health of the company.

References

Blacksmith Institute Inc. and Blacksmith Initiative (UK). Audited Consolidated Statements and Supplementary Information, year ended December 31, 2012.