Red Flag, Yellow Flag

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Financial Analysis Using a Few

Calculations*

*But not many, and they’ll be pretty easy

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Financial Indicators

• Liquidity

• Capital structure

• Profitability

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

LiquidityThe ability to raise cash in

the short term

• Current ratio

• Days’ Cash• Days’ Receivables

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Current Ratio Current assets/Current liabilities

Suggests to what degree the organization has enough cash, or cash equivalents, to meet its immediate obligations

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Current Ratio for Youth Haven

$88,556/55,050 = 1.61

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Days’ CashCash & equivalents * 365

Operating Expenses - Depreciation

If an organization suddenly has to live off its cash accounts only -- no more cash is coming in -- how long will it survive if it continues to spend at its

usual daily rate?

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Days’ Cashfor Youth Haven

$35,539 * 365$553,152 - $12,453

=24

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Days’ ReceivablesAccounts receivable * 365

Operating RevenueFor organizations that provide services for a fee or hold government contracts, how long does it take, on average, to be

paid?

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Days’ Receivables for Youth Haven

$52,610 * 365$400,741

=48

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Capital StructureResources that have been put

into the organization by outsiders – “Sticky Money” • Debt to Net Assets • Accounting Age of Property, Plant and Equipment

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Debt to Net AssetsLong-term Liabilities

Net AssetsCompares the total amount of long term

debt to the total net assets (“net worth”) of the organization to see how much of the

latter could potentially be claimed by outside lenders.

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Debt to Net Assets

$201/$89,634= 0

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Suggests how well an organization keeps up its investment in tangible assets like computers, buildings,

vehicles, etc.

Accounting Age ofPlant, Property and

Equipment Accumulated Depreciation

Depreciation Expense

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Accounting Age ofPlant, Property and

Equipment

$65,134/$12,453=5.2

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

ProfitabilityRevenue - Expenses

Revenue

The famous “bottom line.”

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Profitability

$506,336-553,152/ $506,336=

(9.25%)

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Putting it All TogetherYouth Haven, Inc

Financial Statement Analysis

Liquidity 1999 1998Current ratio 1.61 3.39Days’ Cash 24 33Days’ Receivables 42 34

CapitalDebt to Net Assets 0 .03

Accounting Age 5.2 4.7

ProfitabilityTotal Margin -9.25% 3.08%

Streetsmart Financial Basics for Nonprofit Managers Copyright 2002 Thomas A. McLaughlin

Conclusion •Refer to the book for additional analyses and observations

•Think about what you would do in this situation

•Be sure to listen to the ‘Red Flag Yellow Flag’ talking presentation also on this CD

•Use the rest of the tools presented in the book – this is knowledge. This is empowerment