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Jun 5, 2019 · The ratios represent the three broad areas of liquidity, operations, and spending. Exhibit 1 describes the ratios, what they measure, and how they are calculated. It also computes average values for these ratios for over 200,000 not-for-profits, divided into five categories by entity size, using information available from the IRS website.
- Nonprofits
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- Not-For-Profits
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- Analysis
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- Nonprofits
- Program Expense Ratio
- Administrative Expense Ratio
- Government Reliance Ratio
- Personnel Expense Ratio
- Fundraising Efficiency Ratio
- Current Ratio
- Cash Reserves Ratio
- Accounts Receivable Turnover Ratio
- Leverage Ratio
- Net Margin Ratio
The program expense ratio measures the percentage of expenses that a nonprofit organization is spending on its core mission. This nonprofit ratio is key in the eyes of donors. Charity Navigator updated its rating system in 2023 and now generally gives full credit to those organizations whose ratio of program expenses is 70% or more of their total e...
The administrative expense ratio measures the percentage of an organization’s expenses that are being allocated to administrative costs. This nonprofit ratio is often misunderstood. There is an “overheard myth” that organizations shouldn’t spend money on administrative expenses, but this simply would be unsustainable. In order to stay competitive a...
The government reliance ratio measures a nonprofit organization’s reliance on governmental funding. This nonprofit ratio is important, particularly when overall levels of government funding are declining. The higher this ratio is, the less likely a nonprofit organization will be able to continue to support its programs in the event that funding goe...
The personnel expense ratio simply measures the personnel costs of producing revenue. The benchmark for this nonprofit ratio may look different for each organization, depending on how service-based the organization is. For example, an organization that provides counseling services may have a higher ratio than an organization that provides informati...
The fundraising efficiency ratio measures the efficiency of an organization’s fundraising activities. Simply put, it measures how much it costs to generate one dollar of charitable contributions. A lower ratio is considered better, and Charity Navigator gives full credit to those organizations that spend less than $.20 for every dollar raised. This...
The current ratio is used to measure the overall liquidity of a nonprofit organization. In its simplest form, it shows how many dollars of current assets an organization has to cover its current obligations. The higher the ratio, the more liquid the organization. As a rule of thumb, organizations should strive for a current ratio of 1.0 or higher. ...
The cash reserves ratio, sometimes referred to as the defensive interval ratio, measures the adequacy of an organization’s resources that are available to support its mission. This nonprofit ratio looks at how many months of cash are on hand to cover expenses. The recommended range for cash reserves is three to six months. The cash reserves ratio i...
The accounts receivable turnover ratio is used to show trends in the aging of an organization’s accounts receivable. The benchmark depends on an organization’s typical payment terms. For example, if an organization’s typical payment terms are net 30 days, then you would expect the accounts receivable turnover to be around 12 times per year (every 3...
The leverage ratio measures how heavily leveraged an organization is. In other words, how reliant is an organization on debt? This nonprofit ratio also is an indicator of how sustainable an organization is. A lower score is better here, with the top-rated charities generally having ratios of less than 30%. Nonprofits should pay attention to increas...
The net margin ratio measures an organization’s ability to operate at a surplus. In simple terms, it’s what is left at the end of the day to reinvest into an organization’s mission. Nonprofits should not be expected to not make a profit. They should, however, be expected to be good stewards of the profit that is generated. In addition, continued ne...
May 29, 2020 · Nonprofits can use their audited financial statements to display the work done by a financially savvy and engaged management team. Making the process an organization uses to review, monitor, and address liquidity more transparent helps build trust and confidence in the organization. Curtis Klotz, CPA, is director of nonprofit innovation at CLA ...
Nov 14, 2023 · Below are a few liquidity ratios and corresponding benchmarks that can be utilized by a nonprofit organization. Current Ratio – Current Assets/Current Liabilities: This calculation is used to measure an Organization’s ability to pay back its short-term financial obligations. This value should be at least 1.5, with a higher number being better.
Tools and Ratios Used in Liquidity Analysis. Several financial tools and ratios can be instrumental in analyzing the liquidity of nonprofit organizations. These include: Current Ratio: This is one of the most basic liquidity ratios, calculated as current assets divided by current liabilities. A current ratio of 1 or higher generally indicates ...
Useful Ratios for Liquidity Analysis for Nonprofits Posted on November 14, 2023 Liquidity ratios are useful tools that can be used to assess a nonprofit organization’s ability to cover its short-term financial obligations and to analyze its financial situation. Liquidity is the ability to convert assets to cash in a very short time period.
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May 28, 2024 · Saving for the Future vs. Investing in Impact: Managing Liquidity at Nonprofit Organizations May 28, 2024 Resources nonprofit leaders can use Since 1988, IFF has closed $1.6 billion in loans for more than 1,200 nonprofits, putting flexible capital in the hands of changemakers to help bring their visions for stronger communities to life.
