2. Why would you care?
• You or your client is
considering a
substantial charitable
gift
• You work or want to
work for a nonprofit
• You work for a
foundation that reviews
proposals from
nonprofit organizations
7. Temporarily restricted
means that the funds
are being held
temporarily until they
will be spent for a
designated purpose,
such as constructing a
building.
Permanently restricted
means that the funds
cannot be spent, but
typically the income
can be used to support
certain programs.
9. IRS Form 990
• Nonprofits with
income >$25,000
(except churches)
must file annually
• Nonprofits must
provide upon request
(else IRS fines)
• Available online
39. Profit is opinion. Cash is reality.
Many assets are
difficult to value, e.g.,
some real estate,
“good will”, future
income streams,
pledges, special
purpose entities, etc.
Before its collapse,
Enron had great
“profits” (using hard‐
to‐value assets) but
little cash.
45. Tuckman & Chang
Predictor Variables
• net assets / total revenues [+]
• revenue concentration index defined
as [‐]
• net income /total revenues [+]
• administrative expenses / total
revenues [+]
Tuckman, H., Chang, C., 1991. A methodology for measuring the financial vulnerability
of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly 20(4),
445‐ 60.
46. Altman Predictor Variables
• working capital / total assets (+)
• net assets divided by total assets (+)
• earnings before interest and taxes / total assets (+)
• total revenue / total assets (+)
A model used to predict corporate bankruptcies from
Altman, E., 1968. Ratios, discriminant analysis, and the prediction of
corporate bankruptcy. Journal of Finance, 23(4), 589‐609.
47. Ohlson Predictor Variables
• working capital / total assets [+]
• size = ln(Total Assets/GDP price index) [+]
• total liabilities / total assets [‐]
• current liabilities / current assets [‐]
• net income / total assets [+]
• (pre‐tax income + depreciation + amortization) / total
liabilities [+]
• net Income was negative for the last year [‐]
• (NIt‐NIt‐1)/(|NIt|+|NIt‐1|) scaled net income growth [+]
A model used to predict corporate bankruptcies from
Ohlson, J., 1980. Financial ratios and the probabilistic prediction of
bankruptcy. Journal of Accounting Research 18 (1), 109‐31.
64. Number of months of operating
expenses available by nonprofits
From: Financial Literacy and the Nonprofit Sector. (2012) The Center on Philanthropy at Indiana
University
65. Nonprofit Financial Vulnerability
Financial Funding Program
Firms Insolvency Disruption disruption Disruption
Arts 28,320 5.90% 16.16% 15.31% 10.88%
Education 44,912 3.54% 14.23% 13.14% 9.21%
Health 47,870 7.55% 13.93% 11.33% 9.74%
Human
105,730 10.49% 13.99% 9.37% 7.09%
Services
Religious 13,972 5.15% 17.89% 14.79% 10.93%
Other 49,775 3.82% 14.14% 18.47% 12.74%
Total 290,579 7.08% 14.44% 12.67% 9.38%
(1) Insolvency represents negative net assets (2) Financial disruption risk represents a 25% or
more decline in net assets (3) Funding disruption risk represents a 25% or more decline in total
revenues (4) Program disruption risk represents a 25% or more decline in program expenses;
From: Assessing Financial Vulnerability in the Nonprofit Sector (2005) Elizabeth K. Keating, Mary
Fischer, Teresa P. Gordon, Janet Greenlee
67. Graduate Studies in
Charitable Financial Planning
at Texas Tech University
This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
University, home to the nation’s largest
graduate program in personal financial
planning.
To find out more about the online
Graduate Certificate in Charitable
Financial Planning go to
www.EncourageGenerosity.com
To find out more about the M.S. or
Ph.D. in personal financial planning at
Texas Tech University, go to
www.depts.ttu.edu/pfp/
68. About the Author
Me (about 5 years ago)
Russell James, J.D., Ph.D., CFP® is an Associate
Professor and the Director of Graduate
Studies in Charitable Planning in the Department
of Personal Financial Planning at Texas Tech
University. He graduated, cum laude, from
the University of Missouri School of Law
where he was a member of the Missouri Law
Review. While in law school he received the Lecturing in Germany. 75 extra students
United Missouri Bank Award for Most showed up. I thought it was for me until I
Outstanding Work in Gift and Estate Taxation found out there was free beer afterwards.
and Planning and the American Jurisprudence
Award for Most Outstanding Work in Federal At Giving Korea 2010. I
Income Taxation. After graduation, he worked didn’t notice until later
as the Director of Planned Giving for Central the projector was
Christian College, Moberly, Missouri for six shining on my head
years and also built a successful law practice (inter‐cultural height
limited to estate and gift planning. He later problems).
served as president of the college for more
than five years, where he had direct and
supervisory responsibility for all fundraising. Dr. James received his Ph.D. in Consumer
& Family Economics from the University of Missouri where his dissertation was on the
topic of charitable giving. Dr. James has over 100 publications in print or in press in
academic journals, conference proceedings, professional periodicals, and books. He
has been quoted in a variety of news outlets including The Wall Street Journal, The
New York Times, U.S. News & World Reports, Associate Press, and USA Today.