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Financial Analysis of the University Club at the University of Regina

Background Information

The  University  Club  at  the  University  of  Regina  was  in  financial  distress.  The  club  had  been  losing  money for several years and was being subsidized by the University of Regina. However, due to budget cuts  by  the  Saskatchewan  government,  the  university  was  no  longer  in  the  position  to  subsidize  the  operations  of  the  club.  The  club’s  board  members  had  to  make  some  tough  choices,  but  they  needed  a  detailed analysis of the financial statements to make an informed decision. Loraine Taylor, the accounting professor  who  had  recently  joined  the  club’s  board,  suggested  performing  ratio  analysis  to  assess  the  problem areas.

The University Club was a formal dining facility located on the campus of the University of Regina and was  structured  as  a  non-profit,  membership-based  corporation.  A  board  of  directors,  comprised  of  10 board members elected from the general membership, was responsible for the governance of the club.  
The club’s main objectives as stated in the constitution were the following: 
• To promote communication, fellowship, and goodwill among individuals working within or associated with the University of Regina. 
• To provide quality food services, lounge facilities, recreation, and entertainment for members of the club. 
The  University  Club  was  incorporated  in  1965  and  had  been  housed  in  its  current  location  since  1974, when the University of Regina became an autonomous institute. Up to the 1990s, the club was referred to as the Faculty Club, at which time the name changed to the University Club. The University Club was an upscale  facility  on  campus  and  was  the  preferred  venue  to  entertain  university  guests,  faculty,  and  staff  recruits,  and  to  conduct  special  events.  Although  such  services  were  available  not  far  from  the  campus, the  club  was  the  only  facility  on  campus,  which  made  it  convenient  for  the  faculty  and  other  university  community  members,  especially  in  the  cold  winters.  As  the  whole  university  was  connected  internally.people from anywhere on campus could walk to the club without needing to put on their coat or boots in the coldest winter days—a huge benefit in Regina. 
While the location was advantageous for those working on campus, it was not so for anyone from outside campus. The restaurant was located on the second floor in College West in an obscure location, making it difficult  for  outsiders  to  find.  Parking  was  not  free,  and  the  paid  parking  lot  was  also  quite  far  away.  Restaurant space was also limited, with no room for expansion, and the kitchen space was tight and became hot  when  the  stoves  and  the  dishwasher  were  operating.  Both  the  furniture  in  the  dining  area  and  the  equipment were aging and would need to be replaced soon. 

As  the  statement  of  financial  position  and  the  income  statement  for  the  years  2007  through  2016, indicated, Taylor was concerned that net income was negative in seven out of these 10 years (see Exhibit 1).  The  university  valued  the  services  that  the  club  provided  to  its  faculty,  guests,  and  the  professionals  working at several private organizations housed in the research park on campus. Therefore, the university subsidized these losses by writing off the accounts payable. The most recent write-off occurred in 2009, when  the  university  wrote  off  all  outstanding  debts  owed  to  it  by  the  club.  However,  the  Saskatchewan  government’s  budget  deficit  of  over  $1.5  billion1  reduced  university  funding  by  3.5  per  cent.  With  this  
financial crunch, the university was no longer able to subsidize the club’s shortfalls.  

Taylor noted that the gross income in these 10 years ranged from $500,000 to $700,000. This seemed to be  an  anomaly  to  Taylor negative  net  income  despite  a  sizeable  positive  gross  income.  She  wanted  to  dig deeper by performing a detailed ratio analysis. Financial ratios were calculated from the financial statements of a business and provided a picture of the financial health of the company. These ratios could be divided into several categories based on the type of information they provided.

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