Dr. Winnie Leung January 2014 1 Introduction 2 1 5/26/2014 - PDF document

5/26/2014 NGO Accounting Financial Ratio Analysis Dr. Winnie Leung January 2014 1 Introduction 2 1

5/26/2014 Financial Ratio Analysis • Financial ratio analysis is a quantitative analysis of information in the financial statements to evaluate relationships among financial items. • These ratios can be used to analyze an organization over time or in comparison to similar organizations. 3 Purposes • To evaluate the financial condition of the NGO • To evaluate if the NGO’s activities align with their objectives • To meet the donor’s accountability of the NGO’s performance 4 2

5/26/2014 Useful NGO Financial Ratios 5 Evaluation of: • Financial Sustainability – The Defensive Interval Ratio – Survival Ratio – Reliance of Government Funding Ratio • Efficiency – Program Service Expense Ratio – (Social) Return on Investment 6 3

5/26/2014 How long (e.g. how many months) the NGO can operate and function normally to support its mission if no additional funds are received? THE DEFENSIVE INTERVAL RATIO 7 THE DEFENSIVE INTERVAL RATIO = 8 4

5/26/2014 Example Year 2012 2011 Cash 10,892,265 12,215,558 Receivables 2,166,233 1,322,436 Marketable Securities 497,808 477,192 13,556,306 14,015,186 Average Monthly Expense 2,213,737 1,731,458 Defensive Interval Ratio (months) 6.12 8.09 9 The Defensive Interval Ratio The Defensive Interval Ratio (2012) (2011) 50 50 45 45 40 40 Defensive Interval Ratio 35 35 Defensive Interval Ratio 30 30 25 25 20 20 15 15 Median 8.09 Median: 7.73 10 10 : 7.73 8.09 Mean: Mean: 5 5 13.16 14.10 0 0 NGOs (Number of NGOs = 22) NGOs (Number of NGOs = 22) 10 5

5/26/2014 How long (e.g. how many days) the NGO can survive if all its funds are dried up and levels of activity remain the same? SURVIVAL RATIO 11 SURVIVAL RATIO = ��� ������� ������ � ��� ���� ����� ������ 12 6

5/26/2014 Example Year 2012 2011 Net Current Assets X 365 4,719,317,505 4,969,780,505 Total Income 25,933,499 22,083,211 Survival Ratio (days) 181.98 225.05 13 Survival Ratio 2012 1200 1000 800 Survival Ratio 600 400 154.14 200 Median: 154.14 Mean: 259.94 0 NGOs (Number of NGOs = 22) Survival Ratio 2011 900 800 700 600 Survival Ratio 500 400 300 176.12 200 100 Median: 176.12 0 Mean: 223.83 ‐ 100 NGOs (Number of NGOs = 22) 14 7

5/26/2014 How to measure the risk of reliance and autonomy? RELIANCE ON GOVERNMENT FUNDING RATIO 15 RELIANCE ON GOVERNMENT FUNDING RATIO = ����� ���������� ������ ����� ������ 16 8

5/26/2014 Example Year 2012 2011 Total government grants 10,923,545 11,024,401 Total income 25,933,499 22,083,211 Reliance on Government Funding Ratio 0.42 0.50 17 Reliance on Government Funding Ratio 2012 1.00 Reliance on Government Funding Ratio 0.90 0.80 0.70 0.60 0.45 0.50 0.40 Median: 0.45 0.30 Mean: 0.43 0.20 0.10 0.00 NGOs (Number of NGOs = 22) Reliance on Government Funding Ratio 2011 1.00 Reliance on Government Funding Ratio 0.90 0.80 0.70 0.60 0.50 0.40 0.40 Median: 0.40 0.30 Mean: 0.44 0.20 0.10 0.00 NGOs (Number of NGOs = 22) 18 9

5/26/2014 How to measure the efficiency of programs / services that directly benefit the community ? PROGRAM SERVICE EXPENSE RATIO 19 PROGRAM SERVICE EXPENSE RATIO = ������� ������� �������� ����� �������� 20 10

5/26/2014 Example Year 2012 2011 Program Service Expenses 7,755,193 6,973,903 Total Expenses 26,564,838 20,777,494 Program Service Expense Ratio 0.29 0.34 21 Program Service Expense Ratio 2012 1.00 Program Service Expense Ratio 0.90 0.80 0.70 0.60 0.50 0.40 0.29 Median: 0.29 0.30 Mean: 0.37 0.20 0.10 0.00 NGOs (Number of NGOs = 22) Program Service Expense Ratio 2011 1.00 Program Service Expense Ratio 0.90 0.80 0.70 0.60 0.50 0.40 0.31 0.30 Median: 0.31 0.20 Mean: 0.38 0.10 0.00 NGOs (Number of NGOs = 22) 22 11

5/26/2014 How to measure the efficiency of utilizing the funding? RETURN ON INVESTMENT 23 RETURN ON INVESTMENT = ������� ���������� ����� ������� 24 12

5/26/2014 Is Return on Investment (ROI) appropriate for evaluating the efficiency of an NGO?  Social Return on Investment (SROI) 25 Thank you! 26 13