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Jun 5, 2019 · Liquidity ratios. The “days cash on hand” ratio measures the number of days of expenses that could be paid from existing cash and cash equivalents. Depreciation is removed from total expenses (denominator) since it does not require a cash outlay. Higher values indicate a stronger liquidity position.
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- Nonprofits
May 29, 2020 · To satisfy the minimum disclosure requirement for liquidity, nonprofits must identify their financial assets that are available to meet general expenditures within one year of the balance sheet date. At its simplest, describing availability means listing those assets (e.g., cash, accounts receivable, contributions receivable, short-term ...
FASB Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit (NFP) Entities, requires not-for-profits (NFPs) to provide qualitative and quantitative information about liquidity and availability of resources.
- 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...
For nonprofits, which often deal with cyclical funding and varying cash inflows, understanding and managing liquidity is crucial. Effective liquidity disclosures provide stakeholders with insights into how an organization manages its available resources to meet upcoming expenses and commitments.
Nov 14, 2023 · Monitoring liquidity ratios can help an organization make strong financial decisions to avoid poor liquidity. Below are a few liquidity ratios and corresponding benchmarks that can be utilized by a nonprofit organization.
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Apr 13, 2018 · A liquidity reserve is not required under the new standard but if a nonprofit decides to set up a liquidity reserve as part of its liquidity management plan, specific disclosure in the financial statements is required.
