# FINANCIAL ANALYSIS. National Association for State Community Services Programs. November 2, 2011

## Full text

(1)

(2)

(3)

(4)

(5)

### Don’t analyze the numbers in a vacuum

 Numbers provide a ‘trigger’ for further questions

(6)

## TREND

(7)

(8)
(9)

### Trend Example

Grant Revenue \$600,000 \$500,000 \$400,000 \$300,000 \$200,000 \$100,000 \$0 2005 2006 2007 2008 2009 2010

(10)
(11)
(12)

### Trend Example

Percent of Statewide Total 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2005 2006 2007 2008 2009 2010

(13)
(14)

### Trend Example

2005 2006 2007 2008 2009 2010 \$160.00 \$140.00 \$120.00 \$100.00 \$80.00 \$60.00 \$40.00 \$20.00 \$0.00

(15)

### Trend Example

\$160.00 2005 2006 2007 2008 2009 2010 \$0.00 \$20.00 \$40.00 \$60.00 \$80.00 \$100.00 \$120.00 \$140.00

(16)

### Comparisons:

 Ratios from previous years for internal trends

 Ratios from others in the same ‘industry’

### opportunities, related to:

 Liquidity

 Degree of financial leverage (Debt)

 Self-sufficiency

(17)

### Limitations

 Based on the past to predict the future

 No absolute ‘correct’ number

 Financial statements based on cost (not value)

 Difficult to find true comparables

(18)
(19)

(20)

(21)

### Operating results:

 1. Increase (Decrease) in Net Assets for the Year

○ Goal – Breakeven or positive

○ Mitigating – One time or planned result

 2. Actual vs. Budget

○ Goal – actual within 2 – 3% of budget

○ Mitigating – Emergency unplanned event or one time

revenue

 3. Administrative expenses as a percent of total

(22)

### Cash Flow Management

 4. Cash flow from operations

○ Goal – Positive cash flow from operations

○ Mitigating – Strong plan in place

 5. Grants receivable as a percent of annual grant revenue

○ Goal – 30 days or less

○ Mitigating – Strong capital in place to allow

○ Mitigating – contracts in place that allow slow pay

 6. Payables as a percent of expenses

(23)

### Cash Flow Management (continued)

 7. Available cash on hand

○ Goal – at least 10 days

○ Mitigating – a well managed cash flow system

 8. Current ratio

○ Goal – at least 1.25

(24)

### Future oriented measures

 9. Unrestricted net assets as a percent of revenue

○ Goal – 5 – 10%

○ Mitigating – Strong planning systems in place

 10. Revenue dependency

○ Goal – Largest revenue source is less than 10% of

total revenue

○ Mitigating – Strong program operations with little

chance of funding disruption; program has strong political support

(25)

### Future Oriented Measures (continued)

 11. Long-term debt to net assets

○ Goal – 50% or less

○ Mitigating – Direct relationship between

long-term assets and long-long-term debt is 1 to 1

 12. Debt service costs as a percent of expenditures

○ Goal – 5% or less

○ Mitigating – Long-term funding commitment is

(26)

### Future Oriented Measures (continued)

 13. Future commitments (obligations) to revenue

○ Goal - ????????

○ Mitigating – Multi-year funding contracts in

place

 14. Net book value of fixed assets

○ Goal – at least 50%

○ Mitigating – Good maintenance and safety

(27)

### Step 1 – Acquire financial statements

 3 to 7 years, if possible

### Step 2 – Quick Scan

 Look for large changes

 Look for key numbers

(28)

### Nature of Operations

 Purpose – non-profit organization

 Geographic Region

 Major Funding Source

### Summary of Significant Accounting Policies

 Definition of Cash

 Use of Estimates

 Basis of Accounting – Accrual

 Net Asset Classes – Unrestricted, Temp. Rest, & Perm. Rest.

(29)

### Property and Equipment

 Capitalization Policy

 Categories – Land/Building/Equipment

 Depreciation Basics – Lives/Method

### Income Recognition

 Program Income

 Classifications of Contributions/Donations

 Grant Awards/Unearned Revenue

(30)

### Receivables

 Major Categories

 Timeframe – Current/Long-Term

 Allowance for Uncollectible

### Investments

 Cost

 Fair Market Value

(31)

### Long-term Debt

 Maturities  Security  Purpose 

 Leases 

### Concentrations

 Credit Risk – FDIC

(32)

(33)
(34)

### Subpart C (.21)

 “…recipients to relate financial data to performance data and develop unit cost information whenever practical.”

 “Accurate, current and complete disclosures of the financial results of each…project…”

 “…source and application of funds…”

 “Comparison of outlays with budget amounts for each award.”

(35)

### What does it mean?

 Fund accounting is required

 Minimum of an operating statement

 Budget vs. Actual reporting

 Some level of performance based reporting

(36)

(37)

### 1. Realistic inputs (assumptions)

 GIGO – Garbage In Garbage Out

 Perhaps most important

### 2. Fund based

 Tie revenues to expenses

 Allocate costs

### 3. Flexibility

 Budget is dynamic, not static

(38)

### MINIMUMS:

 Operating results

○ Revenues and Expenses

 Budget vs. Actual

 Budget by month

 Balance Sheet

 Grant Status

(39)
(40)
(41)
(42)
(43)

### Part VI – Section B…Policies

 Conflict of Interest policy

 Whistleblower policy

(44)

### Part VIII…Compensation

 Officers  Directors  Employees  Contractors

### Part IX…Functional Expenses

 Program

 Management and General

(45)

 90 Days 

### Fund Balance

 10% of annual expenses 

### Accounts Payable

 30 days or less

(46)

(47)

### From the audit opinion….

 Material deficiencies in financial reporting…

 …did not maintain effective internal control over financial reporting and compliance with significant laws and regulations…

 …financial condition and long-term fiscal outlook is continuing to deteriorate.

(48)

Updating...

## References

Related subjects :