Nearly 60 colleges are trading in the red and the overall financial health of the sector has declined, according to a report on college accounts published by the Further Education Funding Council, writes Ngaio Crequer.
Fifty-nine colleges have current liabilities that are more than their assets, according to the report. If they were in the private sector, then, technically, they would be insolvent.
The FEFC uses the "current ratio" as a measure of a college's solvency. It compares the amount of cash and other current assets with the level of current liabilities.
The ratio for the sector is 1.68:1. This compares with last year's figure of 1.83:1, showing that, overall, the liquidity of the sector has declined.
As the FEFC says, the level of current assests, especially cash, is vitally important to colleges. Without holdings of cash, a college may be unable to meet its day-to-day commitments. It says that, ideally, the ratio should be in the range of 1.5 to 2.5, although some colleges may be able to operate on less.
Fifty-nine colleges have a ratio of less than 1, compared with 45 in the last accounting period. More than 100 are below the FEFC ideal.
Bryan Davies, the Labour party's spokesman on further education, said: "There are a number of colleges on the brink, and this week's Budget does not ease the pressure. The sector has a deficit that it cannot sustain indefinitely. "
Overall, the financial health of the sector has declined. During the year ended 31 July 1995, the sector made an operating deficit of Pounds 101 million, which was 2.7 per cent of turnover for the period.
This compares with a deficit of Pounds 7m for the first financial period, which was 0.2 per cent of turnover.