Financial Analysis of JMU and GMU

FinancialAnalysis of JMU and GMU

Financialanalysis for James Madison University and George Mason University

JMUis a community coeducation research academic institution that islocated in Virginia, USA. The public institution was initiated in1908 with approximately 20,000 students of which 19,000 students areundergraduates (JMU Annual Reports, 2014 &amp 2015).GMU isconsidered to be the largest public research university located inVirginia, USA. The public institution was founded in 1957 as a branchof University of Virginia that has enrolled more than 30,000 studentsmaking it the biggest university in the Commonwealth of Virginia byhead count (GMU Annual Reports, 2014 &amp 2015).

Analysisof Statement of Revenue, Expenses, and Changes in Net Position

Thisfinancial analysis describes the operating performance and financialrisks of JMU and GMU using net profit ratio, operating expensesratio, and net changes ratio.

Netprofit margin ratio

Netprofit ratio usually substantiates how well the universities hadaccomplished the income from their operations (De Franco, Kothari, &ampVerdi, 2011 pp 900). The financial statement users substantively usethis ratio so as to assess how efficiency JMU and GMU can translateits operations into net earnings.

Netprofit margin=Netincrease in net position/Operating revenue

&nbsp

George Mason University

James Madison University

&nbsp

2015

2014

2015

2014

Net increase in net position

$60,264

$43,717

$45,081

$47,516

Operating revenues

$611,283

$588,203

$391,550

$370,632

Net profit margin

9.86

7.43

11.51

12.82

Thenet profit margin for GMU for the year 2015 was 9.86% which is anincrease as compared to 7.43% for 2014. JMU had a profit margin of11.51% in 2015 and 12.82% in 2014 that represent a decrease. JMUreported a decline of 1.3% for revenue from 2014 to 2015 while GMUreported a 2.43% increase from its operations. The perspectivesubstantiates that JMU was able to gain more revenue to what GMUrealized during the two years. George Mason University has a higherprofit margin than the James Madison University which means that theyhave a significant control in the education sector (Peng,Wang, Kou, &amp Shi, 2011).

Operatingexpenses ratio

Operatingexpenses ratio= Operating expenses/Revenues

&nbsp

George Mason University

James Madison University

&nbsp

2015

2014

2015

2014

Operating expenses

$752,375

$737,788

$466,047

$447,557

Operating revenues

$611,283

$588,203

$391,550

$370,632

Operating expenses ratio

123.08

125.43

119.02

120.76

Accordingto operating expenses ratio analysis, GMU reported a 123.08% in 2015from 125.43% in 2014 which demonstrated a decrease in expenses. JMUreported 119.02% in 2015 and 12.76% in 2014. This depicts that bothcompanies were able to increase its sales more without increasingoperating expenses. This analysis accentuates that JMU has a higherexpenses in attempting to carry out their day to day operations(Hillier,Grinblatt, &amp Titman, 2011).GMU experienced 1.98% increase in its loss from the operation whichwas a result of educational and general expenditures, depreciationand auxiliary expenses.

Changesin net position

Netchanges

Currentratio which substantiates the capability of both entities to pay offits short-term liabilities with current assets

Netchanges ratio= Net position/Operating revenues

&nbsp

George Mason University

James Madison University

&nbsp

2015

2014

2015

2014

Net increase in net position

$60,274

$43,717

$45,081

$47,975

Operating revenues

$611,283

$588,203

$391,550

$370,632

Net changes ratio

9.86

7.43

11.51

12.94

Accordingto the net changes ratio, GMU net changes increased from7.43% in 2014to 9.86% in 2015 which demonstrated that the public institutionimproved its operations and activities (Healy &amp Palepu, 2012).The changes in net position for JMU demonstrated that the publicentity realized a slight decline of 11.51% in 2015 from 12.94% in2014. Regardless of the declining revenues in both entities, theystill demonstrate an affirmative signs of improvement in operationand therefore, low financial risk that is considered good forinvestors and creditors.

Majorstrengths of GMU relative to JMU

  • Higher market control in terms of students

  • Low costs of operations

Majorweakness of GMU relative to JMU

  • Low market control in terms of students and assets

  • Weak finances according to the financial ratio analysis.

Recommendation

Basedon the financial statement analysis, I would invest in George MadisonUniversity because of its strong financial position. In general, GMUis a stronger and more firm institution than JMU that I shouldcontemplate to invest in (Healy &amp Palepu, 2012). Based on thecurrent ratio analysis, GMU is able to pay off its currentliabilities using current assets which mean that the entity has astrong financial position as compared to JMU.

References

DeFranco, G., Kothari, S. P., &amp Verdi, R. S. (2011). The benefitsof financial statement

comparability.Journalof Accounting Research,49(4),895-931.

GeorgeMason University Annual Reports (2014 &amp 2015). Retrieved from

http://civil.gmu.edu/wp-content/uploads/2016/06/2015-CEI-Annual-Report.pdf

Healy,P. M., &amp Palepu, K. G. (2012). BusinessAnalysis Valuation: Using Financial Statements.

CengageLearning.

JamesMadison University AnnualReports (2014&amp 2015). Retrieved from

http://www.jmu.edu/financeoffice/fin-statements/JMU2015_Report_Final.pdf

Hillier,D., Grinblatt, M., &amp Titman, S. (2011). Financialmarkets and corporate strategy.

McGrawHill.

Peng,Y., Wang, G., Kou, G., &amp Shi, Y. (2011). An empirical study ofclassification algorithm

evaluationfor financial risk prediction. AppliedSoft Computing,11(2),2906-2915.