This guide for members of the governing boards of independent colleges and universities is intended to provide information necessary to an understanding of college and university financial statements, especially annual financial statements. Following an introductory chapter, chapter 2 identifies key questions and strategic issues facing institutions in the areas of pricing, financial aid, revenue sources, costs, physical plant/capital maintenance, and measures of service efforts and accomplishments. Chapter 3 offers an overview of the requirements of the financial reporting process, including definitions, the statement of financial position, statement of activities, statement of cash flows, the financial reporting process, and objectives of financial reporting. The next three chapters examine the statements of financial position, activities, and cash flows in more detail. Chapter 7 addresses external market assessments such those from Moody's Investors Service and the Standard & Poor's evaluations of operating ratios, financial strength ratios, and liquidity and cash flow ratios. Chapter 8 offers guidelines for effective internal assessment of financial health, and covers tuition dependance, financial aid, endowments, costs, and use of debt. Examples using a hypothetical university are provided throughout the guide and in two appendices. (Contains 12 references.) (DB)