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Douglas J

Hello class,

 

Nonprofit organizations track performance metrics and are accessible through sources such as GuideStar, INC, the BBB Wise Giving Alliance, Charity Navigator, CharityWatch, and more. These are very useful tools for benchmarking ones own nonprofit organizations against industry averages or standards. Some of the primary financial ratios that are used include:

 

· Liquidity – can the organization pay its current debts? This is critical to ensure repayment of current and future obligations

· Formula: Current Assets / Current Liabilities

· Program effectiveness – Is an appropriate amount spent on accomplishing the NFP’s goals? – Ensures that, compared against industry averages, programs are receiving proper funding. Program efficiency metrics will also be useful in conjunction with effectiveness.

· Formula: Program expenses / Total expenses

· Fund-raising efficiency – Are the costs of raising contributions an appropriately small percentage of the contributions received? This can help to measure how well current fund-raising efforts are performing. If this ratio is too low, other forms of fund raising should be explored. This is critical, as fund raising is a primary source of income for most nonprofit organizations.

· Formula: fund-raising expenses / total contributions

 

These are the primary ratios I will be using to examine my nonprofit. If liquidity ratios are too low, the organization should release assets or increase income. If program effectiveness is too high or too low, spending can be reallocated to support other programs. If fund-raising efficiency is too low, other methods of fund-raising should be explored.

 

Reference:

 

 ACC-325. [[VitalSource Bookshelf version]].  Retrieved from vbk://9781307297560

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