The Federal Composite Financial Index (CFI) is an indicator of the relative health of a school based on several key financial measures. The formula for calculation is specified by IPEDS. For private, not-for-profit schools three financial factors are weighted and then combined to form the final CFI score. The three factors are:
The Primary Reserve Ratio is an indication of how long a school could stay in business if all income and activity were to stop. It represents the amount of expendable net assets (net assets minus long-term debts) available to cover the annual expenses of the school. The ratio x 365 indicates how many days the school could cover its costs that year based on its expendable net assets. A negative PRR indicates that the school does not have enough expendable net assets to cover its long-term debts should, if they were to come due all at once.
The Equity Ratio represents the proportion of a school’s assets that are available beyond long-term debt obligations. In other words, it indicates what portion of assets would remain, if all debts were paid off.
The Net Income Ratio measures the proportion of revenue above or below expenses. A negative Net Income Ratio indicates that a school is spending more than it is taking in.
The CFI formula uses the ratios for each of the above and then multiplies them by predefined weight and strength factors. The three adjusted scores are then added together to create the final CFI score.
-.1 to .90 – Poor – require additional monitoring
1.0 to 1.4 – Zone – may require some monitoring
1.5 to 3.0 – Pass – finances are healthy and do not require monitoring