Financial Analysis Using a Few Calculations* *But not many, and they’ll be pretty easy Streetsmart Financial Basics for Nonprofit
Financial Indicators • Liquidity • Capital structure • Profitability Streetsmart Financial Basics for Nonprofit
Liquidity The ability to raise cash in the short term • Current ratio • Days’ Cash • Days’ Receivables Streetsmart Financial Basics for Nonprofit
Current Ratio
Current assets/Current liabilities Suggests to what degree the organization has enough cash, or cash equivalents, to meet its immediate obligations
Streetsmart Financial Basics for Nonprofit
Current Ratio for Youth Haven $88,556/55,050 = 1.61
Streetsmart Financial Basics for Nonprofit
Days’ Cash
Cash & equivalents * 365 Operating Expenses - Depreciation If an organization suddenly has to live off its cash accounts only -- no more cash is coming in -- how long will it survive if it continues to spend at its usual daily rate? Streetsmart Financial Basics for Nonprofit
Days’ Cash for Youth Haven $35,539 * 365 $553,152 - $12,453 =24
Streetsmart Financial Basics for Nonprofit
Days’ Receivables Accounts receivable * 365 Operating Revenue
For organizations that provide services for a fee or hold government contracts, how long does it take, on average, to be paid? Streetsmart Financial Basics for Nonprofit
Days’ Receivables for Youth Haven $52,610 * 365 $400,741 =48 Streetsmart Financial Basics for Nonprofit
Capital Structure Resources that have been put into the organization by outsiders – “Sticky Money” • Debt to Net Assets • Accounting Age of Property, Plant and Equipment Streetsmart Financial Basics for Nonprofit
Debt to Net Assets Long-term Liabilities Net Assets
Compares the total amount of long term debt to the total net assets (“net worth�) of the organization to see how much of the latter could potentially be claimed by outside lenders. Streetsmart Financial Basics for Nonprofit
Debt to Net Assets $201/$89,634= 0
Streetsmart Financial Basics for Nonprofit
Accounting Age of Plant, Property and Equipment Accumulated Depreciation Depreciation Expense Suggests how well an organization keeps up its investment in tangible assets like computers, buildings, vehicles, etc. Streetsmart Financial Basics for Nonprofit
Accounting Age of Plant, Property and Equipment $65,134/$12,453=5.2 Streetsmart Financial Basics for Nonprofit
Profitability Revenue - Expenses Revenue The famous “bottom line.�
Streetsmart Financial Basics for Nonprofit
Profitability $506,336-553,152/ $506,336= (9.25%)
Streetsmart Financial Basics for Nonprofit
Putting it All Together Youth Haven, Inc Financial Statement Analysis Liquidity Current ratio Days’ Cash Days’ Receivables
1999 1.61 24 42
1998 3.39 33 34
Capital Debt to Net Assets Accounting Age
0 5.2
.03 4.7
Profitability Total Margin
-9.25%
3.08%
Streetsmart Financial Basics for Nonprofit
Conclusion •Refer to the book for additional analyses and observations •Think about what you would do in this situation •Be sure to listen to the ‘Red Flag Yellow Flag’ talking presentation also on this CD •Use the rest of the tools presented in the book – this is knowledge. This is empowerment
Streetsmart Financial Basics for Nonprofit