Financial Management for Nonprofit Organizations, 3rd Edition

APPENDIX 7BADDITIONAL FINANCIAL RATIOS

We presented our core financial ratios in Chapter 7. However, there are additional ratios that you may wish to calculate to better evaluate the financial position and operating results of your organization. Or, you may have an earned income venture or for-profit subsidiary, and you wish to apply some business ratios to that venture's or subsidiary's operating results. We will present some liquidity and operating ratios that are commonly used by businesses, and many of these could be applied by health care organizations, colleges, and the for-profit subsidiaries of other nonprofits. We then look at some ratios calculated by charity rating agencies and information providers (Charity Navigator and GuideStar). We follow this with some ratios making use of the information in the Statement of Cash Flows. We then profile some Form 990 ratios that have benchmark data available for your comparison. Finally, we present some of our own faith-based organization benchmark data compiled from audited financials.

7B.1 BUSINESS LIQUIDITY, FUNDING, AND OPERATING RATIOS

(a) LIQUIDITY RATIOS. We briefly list average collection period (ACP), inventory conversion period (ICP), average payment period (APP), operating cycle (OC), and the cash conversion period (CCP) here. For more details, see Chapters 2 and 3 of Zietlow, Hill, and Maness, Short-Term Financial Management, Fifth Edition (consult the Notes following Chapter 7 for full citation).

ICP (also ...