Ratio Analysis for Not for Profits

Using ratio analysis to manage your not-for-profit organization has become more popular. There are a set of ratios that help managers and board members evaluate the liquidity, operations, and spending of the organization. It is important for those managers and board members to be able to understand the ratios, analyze the trends and compare to benchmarks. The following ratios are most commonly used:

Liquidity Ratios

  1. Days cash on hand: Measures the number of days of expenses that can be covered from existing cash
  2. Months of spending: Similar to cash on hand, but takes into account accounts receivable

Operating Ratios

  1. Savings indicator: Measures the net revenues that are retained by the organization as a percentage of expenses
  2. Contributions and grants: Measures the extent to which revenues are received from donors and grantors
  3. Fundraising efficiency: Measures the amount of contributions raised for each dollar of fundraising cost

Spending Ratios

  1. Program service expense: Measures expenses incurred on mission related to programs as a percentage of total expenses
  2. Management expense: Measures management and general expenses as a percentage of total expenses
  3. Fundraising expense: Measures fundraising expenses as a percentage of total expenses

For further assistance with these ratios or any other not-for-profit questions, please contact Mike Dempsey, CPA at mdempsey@bwtpcpa.com or 314-576-1350.

Mike Dempsey, CPA is a Senior Accountant with BWTP P.C. Read more about Mike here.

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