Key financial performance indicators for schools

What We Have Found

In 2010, over 90% of schools had at least enough current assets to cover their short-term debts and close to half operated in surplus in each of the last three years. 

Date Updated: March 2012

Indicator Description

Key financial performance indicators for state and state-integrated schools – operating surplus, working capital and public equity.

Why This Is Important

Funding compulsory education is one of the major responsibilities of the government.  The majority of government funding in the schooling sector is delivered to educational institutions in the form of operational grants and teacher salaries.  A school's board of trustees is responsible for the management, organisation and administration of a school under Section 75 of the Education Act 1989.

The purpose of operational grants and teacher salaries is for running day-to-day operations.

The financial performance of schools can be measured by operating surplus, working capital and public equity. They are indicators of sound financial management.

How We Are Going

Operating surplus

The operating surplus is calculated as the difference between total revenue and total expenditure (including depreciation on assets).  In general, schools should have a small surplus each year to have sufficient reserves available to provide for any unexpected expenditure. Schools achieved a combined operating surplus (excluding use of land and building grants from government and other proprietors) of 0.2% of total revenue in 2010, compared with 0.4% in 2009.

Figure 1: Proportion of schools experiencing an operating surplus (2008 to 2010)

Schools can report an operating deficit in one year due to unexpected or unforeseen expenditure.  Operating surplus for multiple consecutive years indicates sound financial management.


Figure 2: Proportion of schools experiencing an operating surplus (2010)


In each of the last three years, close to half of schools have operated in surplus. In 2010, 49.1% operated in surplus, with secondary and primary schools having very similar likelihoods of operating in surplus. A total of 29.4% of schools operated in surplus consecutively across all of the last three years.

Working capital

The level of working capital is an indicator of a school's ability to operate financially and meet debts in the short term.  Working capital is normally measured as a ratio of current assets to current liabilities.

Having a working capital ratio of at least 1:1 means that a school is able to pay its short-term debts and operate with some flexibility. If the working capital ratio is 1:1.35, this means that for every $1 of current liabilities (school owes) they would have $1.35 worth of current assets to meet their short-term financial obligations.

Figure 3: Proportion of schools with working capital ratio (2010)

In 2010, over 90% of state and state-integrated schools had at least enough current assets to cover their short-term debts.

Public equity

Public equity is calculated as the difference between total assets and total liabilities.  Schools in a healthy financial position generally show increasing levels of public equity over time.

Figure 4: Proportion of schools with an increase in public equity (2010)

 

In each of the last three years, over half of all state and state integrated schools have had an increase in public equity.

Public equity reached $1,661 million in 2010, which was a 3.4% increase from 2009.

References

• Ministry of Education (2009). New Zealand Schools: Ngā Kura o Aotearoa. Wellington: Ministry of Education.