BUFDG Financial Information, Analysis, and Trends

Universities operate multiple income streams, the largest typically being tuition fees, research grants, and commercial activities such as accommodation and conferences.
Key measures include:
•    Total Income shows the overall scale of activity.
•    Total Expenditure shows the cost of providing teaching, research, and services.
•    Operating Surplus indicates whether the university’s core business is financially sustainable.
•    Reported Surplus/Deficit includes investment gains/losses and other adjustments; it presents the true movement in financial position.
A sustainable university typically aims for a modest but consistent operating surplus to fund reinvestment.

The balance of income sources affects financial risk:
•    Heavy reliance on home tuition fees may limit growth because fees are capped and any increases may not be in line with inflation.
•    High dependence on international fees can increase income but brings exposure to market and visa risks.
•    Research income enhances academic reputation but often only partly covers the full economic cost.
Monitoring the mix helps determine exposure to funding changes and future risk.

Staff costs are usually the university’s largest expense. Key metrics include:
•    Staff Costs as % of Income – high ratios may indicate pressure on affordability.
•    Operating Costs as % of Income – helps examine non staff expenditure.
If costs increase faster than income, the costs as a % of income figure will get higher. If income increases by the same % as costs, the % will stay the same. If income increases faster than costs, the costs as a % of income will get lower.
•    EBITDA and Adjusted EBITDA – cash like measures showing underlying financial strength before financing and non cash items.

EBITDA is helpful because:
•    It focuses on real performance.
It strips away complicated accounting items that don’t reflect day to day operations.
•    It’s a good indicator of financial sustainability.
If EBITDA is positive, the university is generating cash to pay staff, maintain buildings, and invest in improvements.
•    Banks and credit rating agencies use it.
It helps them judge whether the university can comfortably repay any loans.    

Adjusted EBITDA takes this a step further.
Adjusted EBITDA = EBITDA with unusual or one off items removed
It is designed to show the truest, cleanest picture of the university’s underlying financial performance.

Why do we “adjust” EBITDA?
Some costs or gains are:
•    unusual
•    unexpected
•    non recurring
•    accounting only movements that don’t affect cash
If they were included, they would make the university look:
•    stronger than it really is (if it had a one off gain), or
•    weaker than it really is (if it had an exceptional cost).
So these items are removed to give a fairer, more stable measure of financial health.

Depreciation is a way of spreading the cost of physical things—like buildings, computers, vehicles, and equipment—over the number of years they’re used. It reflects the simple idea that things wear out over time so instead of recording the whole cost upfront, the cost is spread across the years the asset is useful. For example:

A building costing £10 million might be depreciated over 50 years, so the accounts show £200,000 per year.

Why depreciation matters
It shows the true cost of using assets. Rather than one very large cost in the year of purchase, depreciation reflects the ongoing use of an asset.

It helps match cost to benefit
If a building helps the university operate for 50 years, its cost should be recognised across those same 50 years.

It shows when assets are ageing
Higher depreciation may reflect increased investment.
Lower depreciation may indicate older buildings or equipment needing renewal.

It's a non cash item
Depreciation does not involve paying any new cash.
It’s just an accounting way of recognising wear and tear.

Amortisation is similar to depreciation as a way of spreading the cost of something over the time you use it, instead of recording the whole cost on day one but it applies to things you can’t physically touch – i.e. intangible assets. Amortisation helps because it:

Matches the cost with the benefit
If an asset helps the university for 5 years, the cost is shared across those 5 years.

Smooths out the accounts
Large one off purchases don’t distort the financial picture for a single year.

Reflects real value over time
Some intangible assets lose usefulness (like software that becomes out of date).

Liquidity measures show the university’s ability to meet short term obligations:

Cash & Short Term Investments and Net Liquidity Days indicate resilience to unexpected cash pressures.

Net Liquidity Days (NLD)

NLD shows how many days a university can cover its operating expenses with its cash reserves, assuming no new income is received, indicating its short-term liquidity. 

There are multiple ways of calculating Net Liquidity Days but we replicate the one used by HESA, the sector's official statistics agency. The calculation is:

x 365 days.

We do not remove the effect of staff restructuring costs from the denominator, despite this being a part of the calculation used by some institutions in their own published Financial Statements. This is because we do not see staff restructuring costs as 'one offs' to be excluded.

To read more about why we have used this figure, please read the extra Liquidity section.

Current Asset Ratio shows whether short-term assets can cover short-term liabilities. Healthy liquidity is crucial for managing volatility and supporting major capital projects.

A current asset ratio of less than 1 could signal a potential cashflow problem. It could also reduce financial flexibility, meaning an organisation has limited ability to respond to unexpected costs, drops in income, urgent repairs, or new sudden opportunities.

It may also raise concerns for lenders and auditors. Banks and credit rating agencies may see a lower ratio as a sign of strain.

Auditors may highlight it as a going concern risk if severe but they will do much more analysis to show whether a university is financially viable for the next 12 months.

A low current asset ratio also increases operational risk. If short term bills pile up, the organisation may need to delay payments, borrow more, sell assets, or cut or slow spending. These actions can obviously affect staff, students, or service delivery.

Universities often borrow to invest in buildings, labs, and digital infrastructure. Key measures include:
•    External Borrowing as % of Income – indicates how leveraged the university is.
•    Interest Cover Ratio – tests ability to meet interest payments safely.
•    Gearing Ratio – compares debt to net assets, showing long-term solvency.
•    EBITDA to Debt Ratio – indicates the scale of borrowing relative to cash-generating capacity.

These measures are all closely monitored by lenders and credit rating agencies.

Taken together, these indicators create a picture of the university’s financial health:
•    Strong liquidity,
•    sustainable surpluses,
•    manageable debt, and
•    diversified income.

These all contribute to long-term stability and the ability to continue investing in academic excellence and the student experience.