Financial Management for Nonprofit Organizations, 3rd Edition

APPENDIX 5BGOOD, BETTER, AND BEST MEASURES OF TARGET LIQUIDITY

The following seven measures of target liquidity may be used by a nonprofit organization, with the higher-numbered measures being best (but recognize that if you are using supplemental information you could use a lower-numbered measure to arrive at a liquidity position approximately consistent with #7). We do not include any permanently restricted cash or short-term investments in these calculations. For background and development of these measures and related concepts, see Chapters 7 and 8. The authors acknowledge their debt of gratitude to Lilly Endowment, Inc., for its funding of the original study by John Zietlow, from which the concept and primacy of target liquidity emerged.

1. Target cash = Amount in checking account
2. Target cash and equivalents = Amount in checking account + Short-term investments up to 3 months in maturity

   or = Target cash + Investments up to 3 months in maturity

3. Target cash and equivalents and short-term investments = Amount in checking account + Short-term investments up to 3 months in maturity + Short-term investments from 3 months to 1 year in maturity or = Target cash and equivalents + Short-term investments from 3 months to 1 year in maturity
4. Target liquid reserve = Amount in checking account + Short-term investments up to 3 months in maturity + Short-term investments from 3 months to 1 year in maturity + Available portion of credit line

   or = Target cash and equivalents and short-term ...