Financial analysis and Budget memo

One technique used to assess an organization’s financial management is ratio analysis,

which focuses on mathematical comparisons between or among accounts on a set of financial statements. While an organization’s size must still be taken into account, financial ratios allow a rough comparison of both large and small organizations.For example, looking at the expenses for Marist and Harvard isn’t particularly useful. However, looking at the ratio of program expenses to total expenses allows us to determine how much of each organization’s budget is used for administrative expenses versus mission critical programs.Ratios also represent benchmarks that organizations can use internally to analyze themselves over multiple years.Fortunately for us, IRS form 990 represents a quick-and-dirty set of financial statements for nonprofit organizations in the U.S.

There are many types of financial ratios for evaluating nonprofit organizations. For this assignment we will examine four types:

Efficiency:Efficiency ratios examine an organization’s fundraising and administrative capabilities.Typically efficiency ratios examine how much of an organization’s expenses are used for administrative purposes as compared to program expenses.Efficiency ratios also examine how well an organization fundraises.Does it spend an inordinate amount on fundraising and how much does it actually raise relative to its fundraising expenses?

Profitability:Profitability ratios examine changes in an organization’s surplus or changes in net assets.Profitability analyses typically seek to determine whether an organization has an appropriate surplus relative to its revenues and expenses.

Liquidity:Liquidity analysis examines whether an organization is generating enough cash to support its operations.The lower a liquidity ratio, the greater the risk that an organization will not be able to meet its operating expenses.Organizations with high liquidity ratios may want to consider investing funds for a higher rate of return if they aren’t being used.

Long-term solvency: Long-term solvency examines the long-term financial health of an organization.Solvency ratios typically examine an organization’s assets and debt. Solvency analyses examine how organizations structure debt and whether the organization matches the terms of its debt appropriately with the life of its assets.

Assignment:

Part I (70%):

1. Choose an organization (this can be your hypothetical organization, but it does not have to be your hypothetical organization).Download the 990s for three comparable nonprofit organizations from www.guidestar.org.

2. Draft a memo to your instructor that analyzes the financial statements using at least one profitability, liquidity andlong term solvency ratio for each organization.Be sure to discuss how the ratios might impact how they would impact the management of your nonprofit organization (see attached table for a sample of how to calculate the ratios from 990s).

3. What other information might you want to use in determining the organization’s health? Why?

Part II (30%):

For your hypothetical organization, write a budget narrative to fund a new program.You should (briefly) describe the new program and discuss how it helps the organization fulfill its mission.For each of the following categories estimate the total amount of funds you will need and how the funds are to be used.

Budget categories:

• Personnel
• Equipment
• Supplies/phone
• Travel
• Indirect costs
• Total costs

To submit this assignment, please upload one file with both your memo and budget narrative.A separate spreadsheet should not be included when submitting this assignment.