University of Ontario Institute of Technology Financial Analysis
The institution experienced a growth in revenue between March 2012 and 2013 by 13.22%. The table presented below shows the proportion of the revenue generated from the various sources and change in revenue.
|March, 31 2013||March, 31 2013||Percentage change|
|Student tuition fees||31.23%||30.62%||15.48%|
|Student ancillary fees||8.58%||8.70%||11.59%|
|Revenues from ancillary operations||2.12%||2.67%||-10.11%|
|Amortization of deferred capital contributions||5.27%||4.03%||48.03%|
|Unrealized gain on investments||0.54%||0.12%||402.73%|
It can be noted that the institution received over 90% of the revenue from grants (from the government) and student’s fees (tuition and ancillary). Further, the company experienced an increase in the majority of the various sources of revenue apart from donation and revenues from ancillary operations.
Despite the fact that the institution reported an increase in the total amount of revenue, it faces a number of challenges in raising the revenue. First, the university has a low retention rate. This can be attributed to the fact that over 66% of the students who join in the first year do not come back in the second year. This affects the flow of revenue. Further, the institution is likely to experience a decline in the amount of grants because an increase in grants depends on the additional number of students enrolled. However, the university is currently experiencing a decline in annual intake. Thirdly, the university offers some courses that are less profitable, such as humanities courses. This reduces the ability of the school to raise revenue.
The table presented below shows how the proportion of each category of expense and the percentage change of expenses.
|March, 31 2013||March, 31 2013||Percentage change|
|Salaries and benefits||46.09%||42.27%||15.29%|
|Supplies and expenses||19.72%||23.33%||-10.61%|
|Amortization of capital assets||14.84%||13.57%||15.59%|
|Gain on disposal of capital assets||-0.19%||-0.23%||-13.63%|
Salaries and benefits are the major expense incurred by the university. Supplies and expenses follow with about 20% of the total amount of expenses. It can be observed that the university has a high amount of interest expense and amortization of capital assets. The total expenses increased by 5.73% in the period. A major challenge that the institution faces is the increasing cost salaries and benefits, and interest expense. If the current trend of these costs persists in the future, then the university may experience a problem in making profits.
The profit earned by the institution increased by 427.18%. This can be attributed to an increase in various revenues and a decline in the various expenses. The decline is a favorable indication for the institution because survival of the university depends on the profitability.
Financial statement analysis
The current ratio declined from 0.45 in 2011 to 0.42 in 2012. The value increased to 0.67 in 2013. The ratios indicate that the company faces liquidity problems. The institution has a high amount of debt in the capital structure. The value of debt to equity ratio declined from 304.46 in 2011 to 84.79 in 2012 and further to 23.25 in 2013. Even though the decline was favorable, the amount of debt is high and this affects the profitability of the institution because it results in a high amount of interest expense. This also affects the solvency because the earnings (for 2012) may not cover interest expense. This exposes the institution to the risk of liquidation (Sinha 77).
Financial obstacles faced by the institution
The first obstacle faced by the institution is fluctuations in the interest rate. Changes in the value of interest rate affect the amount of interest income and the value of securities. The fluctuations may result in a financial loss or a decline in revenue for the company. This will affect the ability of the school to plan for the revenues expected in the coming year. Secondly, fluctuations in foreign exchange rate also affect the ability of the school to plan for revenues that are expected from international students. Thus, the school will not be in a position to budget effectively. The final obstacle is the liquid nature of the various investments (Sinha 33). The investments of the university are held in assets that can be traded in an active market. This creates volatility that hinders the ability of the school to plan effectively.
First, the institution should introduce new profitable programs such as Game and Development program and Master’s of Business. This will increase the amount of intake and revenue for the institution. Secondly, the institution should come up with an efficient feedback mechanism. This should focus on addressing the students’ concerns so as to increase the retention rate. Thirdly, the institution should market its programs in foreign countries. This will result in an increase in the intake and revenue from international students. Finally, the institution should come up with an alumni program. This should aim at creating contact with several alumni. The program will aid in contacting the alumni easily for support.
Sinha, Gokul. Financial Statement Analysis, New Delhi: PHI Learning Private Limited, 2009. Print.