Dr. Winnie Leung January 2014 1 Introduction 2 1 5/26/2014 - - PDF document

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NGO Accounting Financial Ratio Analysis

• Dr. Winnie Leung

January 2014

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Introduction

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Financial Ratio Analysis

• Financial ratio analysis is a quantitative analysis
• f information in the financial statements to

evaluate relationships among financial items.

• These ratios can be used to analyze an
• rganization over time or in comparison to

similar organizations.

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• To evaluate the financial condition of the

NGO

• To evaluate if the NGO’s activities align with

their objectives

• To meet the donor’s accountability of the

NGO’s performance

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Purposes

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Useful NGO Financial Ratios

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Evaluation of:

• Financial Sustainability

– The Defensive Interval Ratio – Survival Ratio – Reliance of Government Funding Ratio

• Efficiency

– Program Service Expense Ratio – (Social) Return on Investment

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THE DEFENSIVE INTERVAL RATIO

How long (e.g. how many months) the NGO can operate and function normally to support its mission if no additional funds are received?

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THE DEFENSIVE INTERVAL RATIO =

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Example Year 2012 2011 Cash 10,892,265 12,215,558 Receivables 2,166,233 1,322,436 Marketable Securities 497,808 477,192 13,556,306 14,015,186 Average Monthly Expense 2,213,737 1,731,458 Defensive Interval Ratio (months) 6.12 8.09

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7.73 5 10 15 20 25 30 35 40 45 50 Defensive Interval Ratio NGOs (Number of NGOs = 22)

The Defensive Interval Ratio (2012)

Median : 7.73 Mean: 13.16

8.09 5 10 15 20 25 30 35 40 45 50

Defensive Interval Ratio

NGOs (Number of NGOs = 22)

The Defensive Interval Ratio (2011)

Median: 8.09 Mean: 14.10

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SURVIVAL RATIO

How long (e.g. how many days) the NGO can survive if all its funds are dried up and levels of activity remain the same?

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SURVIVAL RATIO =

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Example Year 2012 2011 Net Current Assets X 365 4,719,317,505 4,969,780,505 Total Income 25,933,499 22,083,211 Survival Ratio (days) 181.98 225.05

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154.14 200 400 600 800 1000 1200 Survival Ratio NGOs (Number of NGOs = 22)

Survival Ratio 2012

Median: 154.14 Mean: 259.94

176.12 ‐100 100 200 300 400 500 600 700 800 900 Survival Ratio NGOs (Number of NGOs = 22)

Survival Ratio 2011

Median: 176.12 Mean: 223.83

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RELIANCE ON GOVERNMENT FUNDING RATIO

How to measure the risk of reliance and autonomy?

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RELIANCE ON GOVERNMENT FUNDING RATIO =

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Example Year 2012 2011 Total government grants 10,923,545 11,024,401 Total income 25,933,499 22,083,211 Reliance on Government Funding Ratio 0.42 0.50

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0.45 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Reliance on Government Funding Ratio NGOs (Number of NGOs = 22)

Reliance on Government Funding Ratio 2012

Median: 0.45 Mean: 0.43

0.40 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Reliance on Government Funding Ratio NGOs (Number of NGOs = 22)

Reliance on Government Funding Ratio 2011

Median: 0.40 Mean: 0.44

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PROGRAM SERVICE EXPENSE RATIO

How to measure the efficiency of programs / services that directly benefit the community ?

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PROGRAM SERVICE EXPENSE RATIO =

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Example Year 2012 2011 Program Service Expenses 7,755,193 6,973,903 Total Expenses 26,564,838 20,777,494 Program Service Expense Ratio 0.29 0.34

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0.29 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Program Service Expense Ratio NGOs (Number of NGOs = 22)

Program Service Expense Ratio 2012

Median: 0.29 Mean: 0.37

0.31 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Program Service Expense Ratio NGOs (Number of NGOs = 22)

Program Service Expense Ratio 2011

Median: 0.31 Mean: 0.38

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RETURN ON INVESTMENT

How to measure the efficiency of utilizing the funding?

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RETURN ON INVESTMENT =

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Is Return on Investment (ROI) appropriate for evaluating the efficiency of an NGO?  Social Return on Investment (SROI)

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Thank you!

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