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Economic Budgeting for Endowment-Dependent Universities

By: John Y. Campbell, Jeremy C. Stein and Alex A. Wu
  • Format:Print
  • | Language:English
  • | Pages:20
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Abstract

To understand their financial position, universities need to understand the long-term implications of their operating revenues and costs in relation to the financial assets they have available. Standard budgeting procedures that focus on one or two years at a time and use generally accepted accounting principles (GAAP) do not do this. We present an alternative framework that discounts cash flow forecasts over the infinite future and compares the present value of operating obligations to the value of the university’s endowment net of any debt it has issued. We illustrate the potential of this framework using recent data from Harvard’s Faculty of Arts and Sciences (FAS).

Keywords

Budgets and Budgeting; Cash Flow; Cost; Revenue; Education Industry

Citation

Campbell, John Y., Jeremy C. Stein, and Alex A. Wu. "Economic Budgeting for Endowment-Dependent Universities." Working Paper, March 2024.

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