Understand Financial Statement

Without money, no mission, no matter now meritorious, can be achieved. (Bryce, 1992, p.
8)
Understanding and Evaluating the Financial Statements of Not for Profit Organizations
Approach to Ratio Analysis
1.Measurement of financial performance by ratio analysis helps identify organizational strengths and weaknesses by detecting financial anomalies and focusing attention on business. 2.Ratio analysis is a well established tool to evaluate an organizations profitability, liquidity and financial stability. As such it can be used to answer a variety of questions.
Statement of Financial Condition The Statement of Activities provides information on the operating activities of a nonprofit between one date and another.
National Youth Training and Resources Organization Comparative Statements of Financial Position For the Years Ended December 31, 1999 and 2000 Assets Cash Pledges Receivable (net) Investments Prepaid Expenses Fixed Assets (net) Total Assets
2000(Rs.) 200,000 120,000 755,000 15,000 220,000 1,310,000 1999 (Rs.) 142,000 65,000 700,000 13,000 40,000 960,000
Liabilities and Net Assets Liabilities Accounts Payable Grants Payable Refundable Advances Long Term Debt Total Liabilities
50,000 25,000 20,000 200,000 295,000
60,000
60,000
Net Assets Unrestricted Temporarily Restricted Permanently Restricted Total Net Assets Total Liabilities and Net Assets
325,000 45,000 645,000 1,015,000 1,310,000
300,000 600,000 9 00,000 960,000
Questions Asked to Assess Financial Performance 1.Mission What is your organizational mission? Is the mission consistent with the stakeholders values? How does that translate into goals and objectives? What is the business model/strategy? What are present obstacles to fulfilling the mission?
2. Service Delivery What is the demand for these services? What type, volume and quality of services are delivered? Are these services compatible with mission? Are they meeting goals and objectives (are spent on right stewardship things)? What are present obstacles in service delivery? 3. Organizational Management What is the experience and expertise of management? What is the quality of internal support systems? What is the administrative efficiency? What is the appropriateness of compensation?
4. Organizational Funding What cash funds are available? What non-cash contributions (goods, services volunteers) are used and available? How financial supportive are board and community? How financial supportive are commercial activities? Is there continuity of support and diversity of income streams? How compatible is the funding with the mission? How efficiency is fundraising and development? What are present obstacles in funding and support? 5. Financial Health What is the cash flow position? How financially stable is the organization? Does it have accumulated wealth to sustain it if funding is reduced?
6. Financial Management
What is the quality of internal control system? How prudent is the cash and investment management? Are non-financial assets prudently managed?
Model of Financial Performance in Relation to its Goals in Non-profit Management
Ratios which are useful 1. Accounting Equation Assets = Liabilities + net assets = Outstanding Debts + Assets financed by the promoters (net asset)
Non-Profit - Net assets > + increase in Revenues < - decrease when expenses are recorded
For Profit = Net profit is added to net worth.
2. Performance - Analysis of Expenses Current expenses Capital expenses Reserves
3. Analysis of each type of expenses as a percentage of total expenses.

Expenses Ratios a. Program Expenses b.Administration/Salaries and Wages/Overheads
c.Trend analysis in expenses over a period of time

4.Comparisons in Relation to Budget Analyze results achieved against budgeted expenses and income 5. Liquidity Ratios Current Ratio : Current Assets : Current liabilities Acid test Ratio : Quick Assets : Quick Liabilities Networking Capital : Current Assets Current Liabilities = NWC
Ability to Pay Monthly Expenses : Monthly Revenue
6. Financial Distress a) Net Assets : Total Liabilities :Extent other people funds for purchasing assets b) Total Revenues : Total Expenses Comparison of Major expenses to total revenue.
7. Profitability Total assets employed : Total Revenue Generated (internal + External)
8. Sustainability
Revenues from donors/Contributors : Total expenses Internal Generation : Total expenses Debt burden Ratio = Total borrowing : Total Expenditure
9. Whether Regular income is received from Members/Donors
Comparison over five year period

Total membership/Donor income : Total Expenditure
10. Membership satisfaction Total members/leaders this year: Total members/Leaders is the Base year Membership Retention = Members This year:
Members in Base year

Understand Financial Statement

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Without money, no mission, no matter now meritorious, can be achieved. (Bryce, 1992, p.

50,000 25,000 20,000 200,000 295,000

325,000 45,000 645,000 1,015,000 1,310,000

300,000 600,000 9 00,000 960,000

Model of Financial Performance in Relation to its Goals in Non-profit Management

For Profit = Net profit is added to net worth.

2. Performance - Analysis of Expenses Current expenses Capital expenses Reserves

3. Analysis of each type of expenses as a percentage of total expenses.

c.Trend analysis in expenses over a period of time

Ability to Pay Monthly Expenses : Monthly Revenue

7. Profitability Total assets employed : Total Revenue Generated (internal + External)

9. Whether Regular income is received from Members/Donors

Comparison over five year period

Members in Base year

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