Approved by Board of Trustees
Effective Date: April 5, 2022
Responsible Division: Business and Finance
Responsible Office:  Business and Finance
Responsible Officer:  Associate Vice President, Business and Finance

I. Purpose

It is the policy of Middle Tennessee State University (MTSU or University) to have a sound financial base that demonstrates financial stability sufficient to support the mission of the University over the long term. A sound financial base and a pattern of financial stability provide the foundation for accomplishing the University’s mission, regardless of changing economic conditions. Financial and physical resources should be managed in a manner that permits the University to fulfill its mission long term.

II. Responsibility

The President, through the Vice President for Business and Finance, is responsible for administering and managing the University’s financial affairs in such a manner as to ensure the University’s current and future financial health. This policy establishes the tools used to assess the financial health of the University, the reporting process, and actions to be taken if the University shows signs of financial weakness.

III. Background

A.  The analytical framework contained within this policy is derived from Strategic Financial Analysis for Higher Education; Identifying, Measuring & Reporting Financial Risks; Seventh Edition, published by KPMG; Prager, Sealy & Co., LLC; and ATTAIN. This framework and its primary metric, referred to as the Composite Financial Index (CFI), are widely used in the higher education community to understand the financial health of institutions. The methodology, ratios, and related benchmarks contained in this policy are taken from this publication.

B.  To determine the University’s financial performance, four (4) questions are asked:

1.  Are resources sufficient and flexible enough to support its mission?

2.  Does financial asset performance support the University's strategic direction?

3.  Do operating results indicate the University is living within its available resources?

4.  Is debt managed strategically to advance its mission?

C.  To address these four (4) questions, data from the University’s unaudited financial report are used to determine four (4) core financial ratios that are then combined into a single composite metric of financial condition, the CFI.

IV. Calculation of Core Ratios and CFI

All calculations include the financial results of the University’s component unit (i.e., related foundation(s) noted as “CU”) to present a comprehensive picture of the University’s overall financial condition. The data source for calculation of each ratio is the University’s unaudited annual financial report, with all calculations reflecting the results from a single year (i.e., no use of moving averages). The four (4) core financial ratios, including general descriptions, the calculation method, data sources, an expected performance standard, and a performance watch level, and a similar description of the calculation and interpretation of the CFI value, are as follows: