Q: What role does the Annual Comprehensive Financial Report play in the University’s overall strategic planning and decision-making process?
Knuffman: The Annual Comprehensive Financial Report serves as a foundation for our strategic vision by fostering a stronger understanding of our finances across the campus community. When people truly understand Carolina’s financial position, they can engage in more meaningful conversations about our resources and priorities. This transparency doesn’t just build trust, it empowers our stakeholders to participate in informed discussions about resource allocation. Ultimately, this shared understanding leads to more collaborative planning and smarter strategic decisions that align with both our immediate needs and long-term institutional goals.
Q: From your perspective, what are the most critical sections of the report that deserve particular attention?
Knuffman: From my perspective, the management discussion and analysis section is probably the most important, because that’s where the University provides a high-level narrative on our financial condition, big changes and what’s behind some of the numbers.
The numbers themselves are informative, which is why the net position section is also important. The narrative around the numbers provides context by describing what’s happening with operating trends, the major changes in our primary revenue sources and the source of expenditure.
The appendix and some of the financial trends are also really helpful sections. There is a lot of value in looking at the trends in our key revenue drivers and expenses.
Q: Which key financial indicators do you consider most crucial for understanding the University’s fiscal health, and how have they changed over the years?
Knuffman: I think looking at the operating margin — which measures whether we have enough money to cover our expenses and to invest in the things that matter to us the most — is crucial.
We pay close attention to our net position — it gives us the big picture of where we stand financially. Just as important are our cash and liquidity ratios, which tell us if we have enough resources on hand to handle our immediate obligations. We also keep a close eye on our debt service coverage ratio, which helps us understand if we’re generating enough revenue to comfortably manage our debt obligations.
Beyond that, it’s helpful to look at trends in areas such as research expenditures, grant funding and state appropriations. At times, we see movement in major revenue sources or expenses, which provides a lens through which we can view what is happening in the economy.
We can also see key variables move. For example, we always have consistent and generous support from the state. But that amount may jump at times, reflecting a big investment in a certain area. That would show up in the appropriations trends.
Q: How does Carolina’s financial performance compare to peer institutions, and what metrics do you use for these comparisons?
Knuffman: We’re exceptionally strong. We are one of seven public universities with a AAA rating. The big drivers of our strong financial performance are incredible student demand, state support, research funding and fundraising. You can see a lot of those metrics in our financial statements.
It’s important for us to do high-level benchmarking to compare how our institution is operating relative to our peers. The financial report allows us to make these comparisons because we use the same metrics and ways of calculating them.
Q: Can you share a specific example of how past reports have influenced major University initiatives?
Knuffman: As I mentioned, UNC-Chapel Hill is one of seven AAA public universities, but one of the areas where we looked relatively weaker than our peers was operating margin. Flagging that in a previous report prompted us to look at those numbers, evaluate them and take a deeper look at how we might improve them. That was part of the impetus for taking on an all-funds budget approach four years ago to see a clearer picture of our key revenues and expenses. We were able to have conversations, create a forward-looking plan and think more critically about expenses. We can then use available revenues toward our top priorities.
Q: For our non-financial campus community members, what sections would you tell them to look at in the Annual Report to get a sense of the fiscal health of the University?
Knuffman: The management discussion and analysis section is helpful because they make some of these numbers more accessible and provide context. In the back of the report, there is 10 years of data on key metrics of financial trends.
When many people think about the institution, they think about our broad mission: research, fundraising and our relationship with the state. The numbers bring this to life because you can see those trends over time in key areas. In terms of overall financial health, the CFI (Composite Financial Index) is considered the most comprehensive and best measure. It’s a great metric (in the appendix of the report) where you can see our trend and how we perform. You’ll note that we’re on an upward trend over the last three to four years and currently at the highest mark we’ve been in the last decade. We have a relatively strong performance.
Q: Looking ahead, how do you envision the role of financial reporting evolving at Carolina or in higher ed in general over the next five to ten years?
Knuffman: In higher education, there’s a trend toward better financial data and better access to that data to inform the institution’s strategy and direction. Institutions need to have this information more available and accessible to decision-makers. We’re going to see more of a premium on better tools and training, as well as changing the culture around finances at institutions. This will lead to an increased comfort level with using this data and having conversations about finances. This results in more accountability and better strategy.
Q: What did we not cover?
Knuffman: I’d be remiss if I didn’t recognize our outstanding financial reporting team. The Annual Comprehensive Financial Report represents countless hours of meticulous work by our dedicated finance team. Their expertise often goes unsung, but their work directly impacts our ability to fulfill our institutional mission. I’m genuinely grateful for their consistent excellence and professionalism in creating this essential resource for Carolina.