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Financial Management Series
Data Analysis
August 5, 2010
Series Agenda
Session 1: Organizational Systems and Controls
Internal controls and compliance, financial infrastructure,
reporting systems
Session 2: Data Analysis
Interpreting financial statements, financial ratios and financial
dashboards
Session 3: Finance Team
Financial competency and roles and responsibilities
Partners
Kate Sphar, Dewey & Kaye
Scott Leff, Bayer Center for Nonprofit
Management at Robert Morris University
Linda Dickerson, 501c(3)
www.forbesfunds.org
www.forbesfunds.org
www.forbesfunds.org
Session 2
Data Analysis
Interpreting Financial Statements
Financial Ratios
Financial Dashboards
Interpreting Financial Statements
Where should I look first to determine our
immediate financial strengths and
vulnerabilities?
Balance Sheet
Budget vs. Actual Statement
Cash Flow Projections
Balance Sheet
Balance Sheet
Current Assets
How many months of cash do we have on hand?
Are there any receivables that we should be collecting now?
Fixed and Long-term Assets
What is the value of our long-term and/or fixed assets?
What is the cost to us for maintaining these assets?
Are we generating appropriate revenue from our long-term
assets?
Balance Sheet
Current Liabilities
Do we have enough current assets to cover our current
liabilities?
Are we paying our bills in a timely manner?
What commitments must we meet for any deferred liabilities?
Net Assets
What is the net worth we have built in our organization?
Do our assets exceed our liabilities by a solid margin?
Budget vs. Actual Statement
Budget vs. Actual Statement
Best Practices
Compare YTD budget with YTD actual
Show variance between figures
Include variance as a percentage of budget
Include full-year budget as a point of reference
Budget vs. Actual Statement
Key Questions
What is our bottom line?
What line items account for the variance from our budget?
What is the reason for the line item variance?
Do we need to make adjustments moving forward?
Cash Flow Projections
Cash Flow Projections
Best Practices
At least six months of projections
Include beginning cash balance from bank statement or
balance sheet
Conservative income estimates – what are we reasonably
certain will come in?
Can produce multiple scenarios based on income and
expense variance (best case, most likely case, worst case)
Cash Flow Projections
Key Questions
How certain are we of our revenue and expense projections?
Do we have ample cash reserves to cover negative cash
flow?
If not, what preparations or adjustments do we need to
make?
Additional Reports
Program statements (program budget vs.
actual)
Cash flow statement (historical)
Company dashboard
Discussion Questions
Is the information in our financial statements and
projections clear, reliable and easy to understand?
How can we improve our financial statements to give us
the information that we need?
Does the information in our financial statements raise
any red flags? If so, what do we need to do to address
them?
Financial Ratios
Context
Trends
Comparison to competitors
Comparison to sector (mission) benchmarks
Internal goal-setting
Financial Ratios
Financial Ratios
Liquidity
Solvency
Profitability
Funding Diversification
Financial Ratios
Liquidity Ratio
Days Cash on Hand = (Unrestricted Cash and Equivalents x
365) / (Total Operating Expenses – Annual Depreciation)
Explanation: This tells how long, in days, the organization could meet
operating expenses without receiving any additional revenue. It is helpful to
compare your current figure to past values as well as to other similar
organizations. Organizations typically strive to maintain at least 90 - 180
days cash on hand.
In some cases, it is appropriate to include "Investments" in the numerator
because these assets can be converted into cash fairly quickly. Also, the
numerator should only include unrestricted funds.
Financial Ratios
Solvency Ratio
Operating Reserves Ratio = Unrestricted Net Assets / Total
Expenses
Explanation: This ratio shows the percent of available operating funds (the
'equity' in a nonprofit agency) that an organization maintains to cover
significant unbudgeted increases in operating expenses or losses in
revenues. Operating Reserves can serve as an internal line of credit when
needed to cover the normal fluctuations of day-to-day operations. If low, the
organization has little unrestricted, spendable “equity” to meet temporary
cash shortages, an emergency, or a deficit situation in the future.
Financial Ratios
Profitability ratio
Savings Ratio = (Total Revenues – Total Expenses) / Total
Expenses
Explanation: This ratio measures the ability of an organization to add to
its net assets. Positive values indicate an increase in savings. The
savings ratio is a simple way to determine if an organization is adding to
or using up its net asset base.
Financial Ratios
Funding Diversity Ratio
Contributed Revenue Ratio = (Contributions + Net Special
Events Revenue) / Total Revenues
Explanation: This ratio measures the composition of funds derived from
contributions and special events, net of expenses, relative to total
revenues. It is useful for observing both long and short-term trends as
well as for setting strategic goals.
Financial Ratios
What are your ratios?
Financial Dashboards
Is this how your Board looks
during the presentation of
financial reports?...
Financial Dashboards
With a financial dashboard,…
You can turn this… To this…
Financial Dashboards
Or, more to the point,…
From this… To this…
Financial Dashboards
Clarity
Focus
Effective use of Board skills
Governance
Strategy
Vision
....Not micromanagement!
What
will
you
put
on
your
Dash-
board?
Session 2
Data Analysis
Questions?
Thank You!
Staci Brogan, Schneider Downs
Garrett Cooper, Bayer Center for Nonprofit Management,
at Robert Morris University
Lauri Fink, Hillman Foundation
Jordan Pallitto, The Hill Group
Karen Ranick, KFMR
Scott Rogerson, The Hill Group
Shawn Sheridan, Dewey & Kaye
JW Wallace, Independent Consultant
Mike Welsh, McCrory & McDowell
Next Session
Finance Team Roles and Responsibilities
August 19, 2010