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  Flyer Consulting | Nonprofit Healthcheck

Financial Health

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Current Assets vs. Current Liabilities

Current Ratio
Description:  
The current ratio is a liquidity ratio to gauge an organization's ability to pay its short-term obligations. The ratio can be read with the number 1 in mind.  When the ratio is above 1, then the organization has enough assets that can easily be converted to cash to pay off obligations.  If a current ratio is below 1, then the organization does not have the current resources to pay off short term obligations.
Impact: 
When looking in the context of an organization, it is a strong indicator of how much of its mobile assets an organization can utilize at any given time relative to the debt is taking on. While being a good metric for debt absorption and relative relief ability, it is also a decent measure on how effectively an organization utilizes its assets.
Calculation: 
[current assets] / [current liabilities]

Debt Ratio
Description:  
The debt ratio measures a company's level of debt.  It gauges long-term, how capable an organization is to pay off their entire debt structure with their total assets. 

Impact: 
Typically, the higher the debt ratio, the more at risk of default an organization is. The debt ratio is impacted by both liability and asset accounts, and thus larger changes in either can create abnormal deviances in the ratio. Specifically, this ratio can be thrown off with capital investment initiatives and new debt. 
Calculation: 

[Total Liabilities EOY] / [Total Assets EOY]

Working Capital
Description:  
The working capital ratio is the amount of available current assets and organization has if it had to pay off all current (short-term) liabilities off. It shows a company's health in terms of what they can operate with on an immediate basis.

Impact: 
A high working capital implies that the company has more assets than liabilities at that given time. If the working capital is rising, that means either the organization is obtaining new liquid assets or paying off short-term liabilities.

Calculation:
[Current Assets] - [Current Liabilities]

Asset Turnover
Description: 
The asset turnover ratio measures how efficient a nonprofit is in using its assets relative to its total contributions. 

Impact: 
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This helps measure a nonprofits ability to use its assets in order to generate more contributions. A higher ratio represents a more efficient use of an organization's assets. 
Calculation:
[Total Contributions]/ [Total Assets EOY]

Cash to Assets
Description:  
The cash to assets ratio measures the amount of a nonprofit's assets held in cash. It is used as a measure of an organization's liquidity.

Impact:
This ratio indicates how liquid an organizations assets are and what portion of those assets sit in cash accounts. It gives some indication to how capable and organization is of paying off its expenses and current debt. The higher the ratio, the greater portion of assets there are in cash.
Description:  
[Cash(non-interest bearing) EOY]/ [Total Assets EOY]

Employee Benefits, Salaries, and Compensation
Description:  
The employee benefits, salaries, and compensation chart indicates how much organizations spend on employee related expenses over time. This is typically reliant on the type of industry and the reliance of professional/skilled workers.
Calculation: 
​[Compensation Of Disqualified Persons]+[Compensation Of Current Officers Directors Etc]+[Other Employee Benefits]+[Other Salaries And Wages]+[Payroll Taxes]

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