This document discusses how grantmakers can use balance sheets to assess the financial risk faced by arts organizations. It explains that balance sheets reveal an organization's liquidity, adaptability, and durability. The author analyzes the sample balance sheet of a theater company to demonstrate how to evaluate these factors. Key points include cash availability, reserves, debt obligations, and calculating financial ratios like months of liquid net assets. Analyzing balance sheets along with income statements over time can provide useful insights into an organization's financial stability and needs.
Here are the key ratios calculated from the financial information provided:
1. Tangible Net Worth for 2005-06: Capital (300) + Reserves (140) - Goodwill (50) = 390
2. Current Ratio for 2006-07: Current Assets (170 + 30 + 170 + 20 + 240 + 190) / Current Liabilities (580 + 70 + 80 + 70) = 820/800 = 1.02
3. Debt Equity Ratio for 2005-06: Total Debt (Bank Term Loan 320 + Unsec. Long Term Loan 150) / Tangible Net Worth (390) = 470/390 = 1.2
The document discusses the FASB exposure draft regarding proposed changes to accounting standards for credit losses on financial instruments. Specifically, it proposes replacing the incurred loss model with a new expected credit loss model called the Current Expected Credit Loss (CECL) model. This new model would require allowances for credit losses to cover estimated losses over the full expected lifetime of financial assets, as opposed to just losses that have already occurred. The changes could significantly increase loan loss provisions and allowance balances held by financial institutions.
Ratio analysis involves computing relationships between financial statement items to interpret a firm's strengths, weaknesses, historical performance, and current condition. Ratios are classified into liquidity, capital structure, profitability, and activity ratios. Liquidity ratios measure short-term solvency and ability to meet current commitments, such as current and quick ratios. Capital structure ratios indicate long-term solvency and ability to repay debt, like debt-equity and proprietary ratios. Ratios are most informative when compared over time, against industry standards, or between firms.
This document provides strategies for community banks to drive profitability. It recommends developing a strategic plan and niche strategy, containing overhead costs, funding strategies with appropriate spreads, and reinforcing a community bank culture with local decision making and excellent customer service. Risk management is key, involving identifying, evaluating and controlling risks before pursuing new strategies. The banking industry is changing with new customer demands for better control, interaction and information.
This document provides a summary of the key financial considerations for a company's expansion project requiring Rs. 100 crore of funding. It recommends short-term financing over long-term options due to lower costs, flexibility, and less interference in management decision-making. Short-term sources could potentially provide long-term funding through renewals. While interest is fixed and assets may be tied up as security, the proposal addresses these shortcomings through negotiation, alternative securities like shares, and preparing legal teams. Overall, short-term financing is presented as the most suitable option given the company's strategic goals and the dynamic home appliances market in India.
Ratio analysis involves calculating and comparing financial ratios to analyze a firm's financial statements and determine its strengths, weaknesses, and financial condition. Ratios compare various data points in the financial statements to reveal important relationships. Common types of ratios include liquidity ratios, capital structure ratios, profitability ratios, and activity ratios. Ratio analysis is an important financial analysis tool that allows users to evaluate trends over time, compare performance to competitors or standards, and identify areas for improvement.
Ratio analysis involves calculating and comparing financial ratios to analyze a firm's financial statements and determine its strengths, weaknesses, and financial condition. Ratios compare various data points in the financial statements and are used to interpret the relationships between different elements. Common types of ratios include liquidity ratios, capital structure ratios, profitability ratios, and activity ratios. Financial ratios provide insight into a firm's performance, position, and prospects when analyzed over time and compared against industry standards or competitors.
Financial institutions face implementation of a new accounting requirement that was issued in June of 216 by the Financial Accounting Standards Board (FASB), Financial Instruments – Credit Losses (Topic 326) commonly referred to as “CECL.” This new standard will become effective in 2020 for SEC filers and 2021 for all other entities – but compliance requires significant review and potential change in many aspects of governance, risk management, credit models and other aspects of operations, so banks must prepare well before the implementation date to be ready by then. CECL, or current expected credit losses, represents a major change in how banks will be expected to estimate losses in the allowance for loan and lease losses (ALLL). This presentation, provided at a Kansas Bankers Association meeting in November 2016, gives an overview of CECL and how to prepare for compliance with it.
Here are the key ratios calculated from the financial information provided:
1. Tangible Net Worth for 2005-06: Capital (300) + Reserves (140) - Goodwill (50) = 390
2. Current Ratio for 2006-07: Current Assets (170 + 30 + 170 + 20 + 240 + 190) / Current Liabilities (580 + 70 + 80 + 70) = 820/800 = 1.02
3. Debt Equity Ratio for 2005-06: Total Debt (Bank Term Loan 320 + Unsec. Long Term Loan 150) / Tangible Net Worth (390) = 470/390 = 1.2
The document discusses the FASB exposure draft regarding proposed changes to accounting standards for credit losses on financial instruments. Specifically, it proposes replacing the incurred loss model with a new expected credit loss model called the Current Expected Credit Loss (CECL) model. This new model would require allowances for credit losses to cover estimated losses over the full expected lifetime of financial assets, as opposed to just losses that have already occurred. The changes could significantly increase loan loss provisions and allowance balances held by financial institutions.
Ratio analysis involves computing relationships between financial statement items to interpret a firm's strengths, weaknesses, historical performance, and current condition. Ratios are classified into liquidity, capital structure, profitability, and activity ratios. Liquidity ratios measure short-term solvency and ability to meet current commitments, such as current and quick ratios. Capital structure ratios indicate long-term solvency and ability to repay debt, like debt-equity and proprietary ratios. Ratios are most informative when compared over time, against industry standards, or between firms.
This document provides strategies for community banks to drive profitability. It recommends developing a strategic plan and niche strategy, containing overhead costs, funding strategies with appropriate spreads, and reinforcing a community bank culture with local decision making and excellent customer service. Risk management is key, involving identifying, evaluating and controlling risks before pursuing new strategies. The banking industry is changing with new customer demands for better control, interaction and information.
This document provides a summary of the key financial considerations for a company's expansion project requiring Rs. 100 crore of funding. It recommends short-term financing over long-term options due to lower costs, flexibility, and less interference in management decision-making. Short-term sources could potentially provide long-term funding through renewals. While interest is fixed and assets may be tied up as security, the proposal addresses these shortcomings through negotiation, alternative securities like shares, and preparing legal teams. Overall, short-term financing is presented as the most suitable option given the company's strategic goals and the dynamic home appliances market in India.
Ratio analysis involves calculating and comparing financial ratios to analyze a firm's financial statements and determine its strengths, weaknesses, and financial condition. Ratios compare various data points in the financial statements to reveal important relationships. Common types of ratios include liquidity ratios, capital structure ratios, profitability ratios, and activity ratios. Ratio analysis is an important financial analysis tool that allows users to evaluate trends over time, compare performance to competitors or standards, and identify areas for improvement.
Ratio analysis involves calculating and comparing financial ratios to analyze a firm's financial statements and determine its strengths, weaknesses, and financial condition. Ratios compare various data points in the financial statements and are used to interpret the relationships between different elements. Common types of ratios include liquidity ratios, capital structure ratios, profitability ratios, and activity ratios. Financial ratios provide insight into a firm's performance, position, and prospects when analyzed over time and compared against industry standards or competitors.
Financial institutions face implementation of a new accounting requirement that was issued in June of 216 by the Financial Accounting Standards Board (FASB), Financial Instruments – Credit Losses (Topic 326) commonly referred to as “CECL.” This new standard will become effective in 2020 for SEC filers and 2021 for all other entities – but compliance requires significant review and potential change in many aspects of governance, risk management, credit models and other aspects of operations, so banks must prepare well before the implementation date to be ready by then. CECL, or current expected credit losses, represents a major change in how banks will be expected to estimate losses in the allowance for loan and lease losses (ALLL). This presentation, provided at a Kansas Bankers Association meeting in November 2016, gives an overview of CECL and how to prepare for compliance with it.
The document discusses the analysis of financial statements. It defines financial statement analysis as the classification and interpretation of items in statements like the income statement and balance sheet. This helps evaluate the financial strengths and weaknesses of a company. The document outlines different types of analysis including external, internal, horizontal, and vertical analysis. It also describes various techniques used like comparative statements, trend analysis, common-size statements, and ratio analysis. Key ratios are discussed including liquidity, leverage, profitability, and activity ratios.
This document provides an introduction to a course on financial management. It outlines the syllabus which will cover topics such as financial statements, ratio analysis, working capital management, time value of money, capital budgeting, and cost of capital. The document explains what will be included in each section of the syllabus. It also presents some introductory information on key financial concepts like the balance sheet, income statement, assets, liabilities, and cash flow statements. Rules for the course emphasize the importance of group work and that the lecturer acts as a facilitator rather than teacher.
This document provides information on various financial analysis tools and ratios. It includes explanations of the 3Rs of credit analysis, the 5Cs of credit, the 7 principles of credit and repayment plans. It also discusses different types of financial statements (income statement, balance sheet, cash flow statement), ratio analysis, and examples of various financial ratios including liquidity, leverage, coverage and activity ratios. Specific calculations and comparisons to industry averages are provided for Basket World.
Publication_ Six Questions on the Path to Financially Justified ProjectsBill Kay, MSOL, PMP
The document discusses key financial concepts that project managers need to understand in order to develop cash flow models and convey a project's value in business terms. It addresses six questions: 1) the accounting method used for depreciating assets, 2) the company's income tax rate, 3) the definition of payback period, 4) what determines if a cost is a capital expenditure vs operating expense, 5) the company's weighted average cost of capital (WACC), and 6) the hurdle rate the company uses to evaluate projects. Understanding these concepts helps project managers create accurate financial models and demonstrate a project's alignment with organizational goals.
The document discusses India's trade balance with foreign countries from April 2013 to February 2014. It notes that while India's total trade increased slightly, exports declined by 4% while imports increased by 0.3%, leading to a 9.2% rise in the trade deficit to a record $182.1 billion. The deficit and collapse of the rupee in 2013 were attributed to unfavorable global market conditions for India's core export products and the second wave of the financial crisis in Europe.
How to Read a Balance Sheet - And Why You Care! (Series: MBA Boot Camp)Financial Poise
A balance sheet provides a snapshot of a company’s assets, liabilities, and equity. It is one of several major financial statements used to manage a business, and is a critical due diligence item used by lenders and investors in deciding whether to provide capital to a business. This webinar explains the basics of understanding a balance sheet and puts it in context by also touching on the other key financial statements.
To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/how-to-read-a-balance-sheet-and-why-you-care-2021/
Prioritizing and Funding Capital Projects.docx4934bk
The document discusses capital budgeting and capital assets. It defines a capital asset as anything acquired that will provide benefits for more than one fiscal year. It explains why organizations create separate capital budgets to evaluate large capital expenditures over their lifetime rather than just one year. The document uses the example of a hospital considering building a new wing, and how including the large construction cost in the operating budget would make the project seem unfeasible, but spreading it over many years in a capital budget could make it feasible.
Ratio Analysis By- Ravi Thakur From CMD Ravi Thakur
Ratio analysis is a technique used to analyze financial statements and evaluate the performance, financial position, and cash flows of a business or corporation. Ratios can be used to compare a company's performance over several years, compare a company to other companies, and assess its operating and financial efficiency. Some key points covered in the document include:
- Ratio analysis involves calculating and interpreting various financial ratios to analyze trends, evaluate performance, assess risk, and make comparisons.
- Common types of ratios include liquidity ratios, leverage ratios, activity ratios, and profitability ratios.
- Ratio analysis helps lenders and others evaluate a company's liquidity position, profitability, solvency, financial stability, management quality, and risk.
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Mark...Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
The Validity of Company Valuation Using Dis.docxchristalgrieg
The Validity of Company Valuation
Using Discounted Cash Flow Methods
Florian Steiger
1
Seminar Paper
Fall 2008
Abstract
This paper closely examines theoretical and practical aspects of the widely used discounted
cash flows (DCF) valuation method. It assesses its potentials as well as several weaknesses. A
special emphasize is being put on the valuation of companies using the DCF method. The
paper finds that the discounted cash flow method is a powerful tool to analyze even complex
situations. However, the DCF method is subject to massive assumption bias and even slight
changes in the underlying assumptions of an analysis can drastically alter the valuation
results. A practical example of these implications is given using a scenario analysis.
____________
1
Author: Florian Steiger, European Business School, e-mail: [email protected]
Table of Contents
List of abbreviations ........................................................................................................... i
List of figures and tables ................................................................................................... ii
1 Introduction .................................................................................................................. 1
1.1 Problem Definition and Objective ...................................................................... 1
1.2 Course of the Investigation ................................................................................. 2
2 Company valuation ....................................................................................................... 2
2.1 General Goal and Use of Company Valuation ................................................... 2
2.2 Other Valuation Methods ................................................................................... 3
3 The Discounted Cash Flow Valuation Method ............................................................ 4
3.1 Approach of the Discounted Cash Flow Valuation ............................................ 4
3.2 Calculation of the Free Cash Flow ..................................................................... 5
3.2.1 Cash Flow to Firm and Cash Flow to Equity.................................................. 5
3.2.2 Building Future Scenarios .............................................................................. 6
3.3 The Weighted Average Cost of Capital ............................................................. 6
3.3.1 Cost of Equity ................................................................................................. 7
3.3.2 Cost of Debt .................................................................................................... 8
3.3.3 Summary ......................................................................................................... 9
3.4 Calculation of the Terminal Value ................................................... ...
This document outlines the topics that will be covered in a financial management course for hospital executives. The course will cover fundamental financial management concepts like risks and rates of return, time value of money, and financial assets. It will also cover topics like capital budgeting, capital structure, working capital management, and financial planning. The document notes that financial management involves planning, directing, monitoring, organizing and controlling an organization's monetary resources. It aims to help organizations achieve financial objectives like profitability, risk control, and meeting stakeholder expectations.
3.3 using financial data to measure and assess performance (part 2) - moodleMissHowardHA
This document provides an overview of balance sheets and their key components. It defines assets as where a business spends its money, and liabilities as where the money comes from. Balance sheets must balance out with assets equaling liabilities. They are used to assess a business's performance and potential by examining factors like fixed assets, current assets and liabilities, shareholder equity, and cash flow. The document outlines the various sections of a balance sheet and considerations for preparing an accurate statement.
This document provides an overview of financial statement analysis. It defines key terms and outlines the major components of analyzing a company's financial statements, including:
- Understanding basic financial statements (balance sheet, income statement) and key ratios
- Analyzing liquidity, leverage, coverage, activity, and profitability ratios
- Comparing ratios internally over time and externally to industry benchmarks
- Evaluating trends to identify potential issues, like high inventory levels reducing Basket Wonders' acid-test ratio
The document uses Basket Wonders as an example, presenting sample financial statements and calculating ratios to demonstrate the analysis process. The goal of analysis is to evaluate a company's financial health and make recommendations to improve performance.
What are some of the ways that government agencies raise.docxwrite5
This document discusses capital budgeting and capital assets. It defines a capital asset as anything an organization acquires that will provide benefits for more than one fiscal year. It explains why organizations need a separate capital budget - to evaluate large capital expenditures over their full lifetime rather than just one year. The document uses an example of a hospital building a new wing to illustrate how a capital expenditure is amortized over the asset's useful life through annual depreciation expenses, rather than expensing the full cost in one year. It also discusses how capital assets are defined in theory versus practice, with organizations typically only treating higher-cost items with lifetimes over one year as capital assets.
This document provides an overview of financial statement analysis. It discusses the types of financial statements and how they are used internally and externally. It also covers various analytical tools used in financial statement analysis, including ratios, cash flow statements, and comparative analyses. Specific examples are provided to illustrate liquidity, leverage, coverage, and activity ratios and how they can be used to evaluate the financial position and performance of a company.
This document discusses ratio analysis and provides definitions and classifications of financial ratios. It defines ratio analysis as drawing meaningful understanding from financial statements by analyzing ratios in a user-oriented approach. Ratios measure relationships between financial figures and are classified according to the statement used, function, and type of analysis provided (liquidity, solvency, performance, profitability, market). Common liquidity ratios are discussed as measuring a company's short-term financial obligations and ability to pay off current liabilities.
Question 1There are three classifications of cash flows which ar.docxmakdul
Question 1
There are three classifications of cash flows which are Operating, Investing and Financing. Within each there are specific transactions that will create net cash used or net cash flows. Describe your understanding of 2 separate transactions within each classification and provide a detailed example of the accounting for each number that will be shown on the Statement of Cash Flows.
Respond to this... “Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payment to suppliers and employees for acquisitions of inventory and expenses. Investing activities generally involve long-term assets and include making and collecting loans and acquiring and disposing of investments and productive long-lived assets. Financing activities involve liability and stockholders’ equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment” (Kieso, Weygandt, & Warfield, 2013, pg. 1412).
The operating activities are income statement items. The cash inflows are tied to sales of goods or services as well as returns on loans and equity securities. The cash outflows include payments to suppliers for inventory, employees for services, government for taxes, lenders for interest, and others for expenses. The investing activities are generally long term asset items. The cash inflows are tied to the sale of PP&E, sale of debt or equity securities, and from the collection of principal on loans to other entities. The Cash outflows include the purchase of PP&E, debt or equity securities, and making loans to other entities. The financing activities are generally long term liabilities and equity items. The cash inflows are tied to sale of equity securities and issuances of debt in bonds and notes. The cash outflows are those to stockholders as dividends and the redemption of long-term debt or reacquiring capital stock. (Kieso, Weygandt, & Warfield, 2013).
References
Kieso, D. E., Weygandt, J. J., Warfield, T. D. (2013). Intermediate Accounting, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from https://ambassadored.vitalsource.com/#/books/9781118722671/
Question 2
In recent years, the treatment of the intangible asset "Goodwill" has undergone significant change as a result of the implementation of FASB 142. Goodwill is the value of a going concern. You can't touch it. You can't bank it. You can't sell it separately. By itself, it is valueless.
Assuming that all unrelated acquisitions are at "arm's length," what is all the fuss about valuing Goodwill? Why should you be concerned about it?
Respond to this... “Because goodwill and some intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets (as wells as total assets) will not decrease at the same time and in the s ...
Convergence Of US-GAAP And International Standards: The Critical Issues Steven Smalt
This paper provides readers with:
1) An update on an institutional change that will focus the attention of worldwide accounting and financial reporting standard setters on the convergence of international and national standards, and
2) An analysis of “in-process” issues in the international accounting arena that will be critical to the success / failure of this convergence effort.
The document provides an overview of financial institutions group (FIG) investment banking, including typical roles, products and services in FIG, as well as learning objectives and sections for understanding FIG concepts like benchmarking analyses, capital roll forwards, and risk management. It defines FIG as the investment banking group that provides capital raising and advisory services for financial institutions like banks, insurance companies, and asset managers.
Name
PSYCH/640
Date
DEFINITIONS
REFERENCES
CONCLUSIONS
DISCUSSION
INTRODUCTION
674
Chapter
Financial Statement
Analysis
After studying this chapter, you should be
able to:
1 Discuss the need for comparative analysis.
2 Identify the tools of financial statement
analysis.
3 Explain and apply horizontal analysis.
4 Describe and apply vertical analysis.
5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,
and solvency.
6 Understand the concept of earning
power, and how irregular items are
presented.
7 Understand the concept of quality of
earnings.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
14
IT PAYS TO BE PATIENT
In 2008 Forbes magazine listed Warren Buffett as the richest person in the
world. His estimated wealth was $62 billion, give or take a few million. How
much is $62 billion? If you invested $62 billion in an investment earning just
4%, you could spend $6.8 million per day—every day—forever. How did
Mr. Buffett amass this wealth? Through careful investing.
You think you might want to follow Buffett’s example and transform your
humble nest-egg into a mountain of cash. His techniques have been widely
circulated and emulated, but never practiced with the same degree of
success. Buffett epitomizes a “value investor.” To this day he applies the
same basic techniques he learned in the 1950s from the great value investor
Scan Study Objectives ■
Read Feature Story ■
Read Preview ■
Read text and answer
p. 681 ■ p. 694 ■ p. 699 ■ p. 701 ■
Work Comprehensive p. 703 ■
Review Summary of Study Objectives ■
Answer Self-Study Questions ■
Complete Assignments ■
The Navigator✓
Do it!
Do it!
JWCL165_c14_674-725.qxd 8/16/09 7:46 AM Page 674
675
Benjamin Graham. That means he spends his time
looking for companies that have good long-term
potential but are currently underpriced. He invests in
companies that have low exposure to debt and that
reinvest their earnings for future growth. He does
not get caught up in fads or the latest trend. Instead,
he looks for companies in industries with sound
economics and ones that have high returns on
stockholders’ equity. He looks for steady earnings
trends and high margins.
Buffett sat out on the dot-com mania in the 1990s,
when investors put lots of money into fledgling high-
tech firms, because he did not find dot-com compa-
nies that met his criteria. He didn’t get to enjoy the
stock price boom on the way up, but on the other hand, he didn’t have to
ride the price back down to earth. Instead, when the dot-com bubble burst,
and nearly everyone else was suffering from investment shock, he swooped in
and scooped up deals on companies that he had been following for years.
So, how does Mr. Buffett spend his money? Basically, he doesn’t! He still
lives in the same house that he purchased in Omaha, Nebraska, in 1958
for $31,500. He still drives his own car (a .
The survey found that nonprofit organizations continue to struggle with increased demand for services due to the lingering effects of the recession and ongoing funding cuts. While some organizations have recovered from the worst impacts, over 85% reported higher demand for services since 2008. Many organizations are unable to meet this growing need as funding has not kept pace. The sector remains stretched thin and feels disconnected from funders and boards. Government funding, which nearly half of respondents rely on, has been unreliable with frequent payment delays, exacerbating financial challenges for nonprofits.
Organizations that can clearly and accurately articulate their financial story and resource needs are better positioned to make a strong case for support. In both good times and bad, your stakeholders will be more engaged if you can provide a data-driven assessment that links your nonprofit’s financial health to its impact and accomplishments. This can inform strategic planning and guide leadership in making mission driven, financially sound decisions.
We've created a worksheet divided into six core areas of nonprofit finance, described in detail in the document:
Revenue
Expenses
Probability and Savings
Health of the Balance Sheet
Liquidity
Financial Planning
Use the worksheet to capture a snapshot of your nonprofit’s strengths and weaknesses. Together, these areas help you balance the three critical components essential to your organization’s long-term viability: Mission, Capacity, and Capital.
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The Validity of Company Valuation
Using Discounted Cash Flow Methods
Florian Steiger
1
Seminar Paper
Fall 2008
Abstract
This paper closely examines theoretical and practical aspects of the widely used discounted
cash flows (DCF) valuation method. It assesses its potentials as well as several weaknesses. A
special emphasize is being put on the valuation of companies using the DCF method. The
paper finds that the discounted cash flow method is a powerful tool to analyze even complex
situations. However, the DCF method is subject to massive assumption bias and even slight
changes in the underlying assumptions of an analysis can drastically alter the valuation
results. A practical example of these implications is given using a scenario analysis.
____________
1
Author: Florian Steiger, European Business School, e-mail: [email protected]
Table of Contents
List of abbreviations ........................................................................................................... i
List of figures and tables ................................................................................................... ii
1 Introduction .................................................................................................................. 1
1.1 Problem Definition and Objective ...................................................................... 1
1.2 Course of the Investigation ................................................................................. 2
2 Company valuation ....................................................................................................... 2
2.1 General Goal and Use of Company Valuation ................................................... 2
2.2 Other Valuation Methods ................................................................................... 3
3 The Discounted Cash Flow Valuation Method ............................................................ 4
3.1 Approach of the Discounted Cash Flow Valuation ............................................ 4
3.2 Calculation of the Free Cash Flow ..................................................................... 5
3.2.1 Cash Flow to Firm and Cash Flow to Equity.................................................. 5
3.2.2 Building Future Scenarios .............................................................................. 6
3.3 The Weighted Average Cost of Capital ............................................................. 6
3.3.1 Cost of Equity ................................................................................................. 7
3.3.2 Cost of Debt .................................................................................................... 8
3.3.3 Summary ......................................................................................................... 9
3.4 Calculation of the Terminal Value ................................................... ...
This document outlines the topics that will be covered in a financial management course for hospital executives. The course will cover fundamental financial management concepts like risks and rates of return, time value of money, and financial assets. It will also cover topics like capital budgeting, capital structure, working capital management, and financial planning. The document notes that financial management involves planning, directing, monitoring, organizing and controlling an organization's monetary resources. It aims to help organizations achieve financial objectives like profitability, risk control, and meeting stakeholder expectations.
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- Comparing ratios internally over time and externally to industry benchmarks
- Evaluating trends to identify potential issues, like high inventory levels reducing Basket Wonders' acid-test ratio
The document uses Basket Wonders as an example, presenting sample financial statements and calculating ratios to demonstrate the analysis process. The goal of analysis is to evaluate a company's financial health and make recommendations to improve performance.
What are some of the ways that government agencies raise.docxwrite5
This document discusses capital budgeting and capital assets. It defines a capital asset as anything an organization acquires that will provide benefits for more than one fiscal year. It explains why organizations need a separate capital budget - to evaluate large capital expenditures over their full lifetime rather than just one year. The document uses an example of a hospital building a new wing to illustrate how a capital expenditure is amortized over the asset's useful life through annual depreciation expenses, rather than expensing the full cost in one year. It also discusses how capital assets are defined in theory versus practice, with organizations typically only treating higher-cost items with lifetimes over one year as capital assets.
This document provides an overview of financial statement analysis. It discusses the types of financial statements and how they are used internally and externally. It also covers various analytical tools used in financial statement analysis, including ratios, cash flow statements, and comparative analyses. Specific examples are provided to illustrate liquidity, leverage, coverage, and activity ratios and how they can be used to evaluate the financial position and performance of a company.
This document discusses ratio analysis and provides definitions and classifications of financial ratios. It defines ratio analysis as drawing meaningful understanding from financial statements by analyzing ratios in a user-oriented approach. Ratios measure relationships between financial figures and are classified according to the statement used, function, and type of analysis provided (liquidity, solvency, performance, profitability, market). Common liquidity ratios are discussed as measuring a company's short-term financial obligations and ability to pay off current liabilities.
Question 1There are three classifications of cash flows which ar.docxmakdul
Question 1
There are three classifications of cash flows which are Operating, Investing and Financing. Within each there are specific transactions that will create net cash used or net cash flows. Describe your understanding of 2 separate transactions within each classification and provide a detailed example of the accounting for each number that will be shown on the Statement of Cash Flows.
Respond to this... “Operating activities involve the cash effects of transactions that enter into the determination of net income, such as cash receipts from sales of goods and services, and cash payment to suppliers and employees for acquisitions of inventory and expenses. Investing activities generally involve long-term assets and include making and collecting loans and acquiring and disposing of investments and productive long-lived assets. Financing activities involve liability and stockholders’ equity items and include obtaining cash from creditors and repaying the amounts borrowed and obtaining capital from owners and providing them with a return on, and a return of, their investment” (Kieso, Weygandt, & Warfield, 2013, pg. 1412).
The operating activities are income statement items. The cash inflows are tied to sales of goods or services as well as returns on loans and equity securities. The cash outflows include payments to suppliers for inventory, employees for services, government for taxes, lenders for interest, and others for expenses. The investing activities are generally long term asset items. The cash inflows are tied to the sale of PP&E, sale of debt or equity securities, and from the collection of principal on loans to other entities. The Cash outflows include the purchase of PP&E, debt or equity securities, and making loans to other entities. The financing activities are generally long term liabilities and equity items. The cash inflows are tied to sale of equity securities and issuances of debt in bonds and notes. The cash outflows are those to stockholders as dividends and the redemption of long-term debt or reacquiring capital stock. (Kieso, Weygandt, & Warfield, 2013).
References
Kieso, D. E., Weygandt, J. J., Warfield, T. D. (2013). Intermediate Accounting, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from https://ambassadored.vitalsource.com/#/books/9781118722671/
Question 2
In recent years, the treatment of the intangible asset "Goodwill" has undergone significant change as a result of the implementation of FASB 142. Goodwill is the value of a going concern. You can't touch it. You can't bank it. You can't sell it separately. By itself, it is valueless.
Assuming that all unrelated acquisitions are at "arm's length," what is all the fuss about valuing Goodwill? Why should you be concerned about it?
Respond to this... “Because goodwill and some intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets (as wells as total assets) will not decrease at the same time and in the s ...
Convergence Of US-GAAP And International Standards: The Critical Issues Steven Smalt
This paper provides readers with:
1) An update on an institutional change that will focus the attention of worldwide accounting and financial reporting standard setters on the convergence of international and national standards, and
2) An analysis of “in-process” issues in the international accounting arena that will be critical to the success / failure of this convergence effort.
The document provides an overview of financial institutions group (FIG) investment banking, including typical roles, products and services in FIG, as well as learning objectives and sections for understanding FIG concepts like benchmarking analyses, capital roll forwards, and risk management. It defines FIG as the investment banking group that provides capital raising and advisory services for financial institutions like banks, insurance companies, and asset managers.
Name
PSYCH/640
Date
DEFINITIONS
REFERENCES
CONCLUSIONS
DISCUSSION
INTRODUCTION
674
Chapter
Financial Statement
Analysis
After studying this chapter, you should be
able to:
1 Discuss the need for comparative analysis.
2 Identify the tools of financial statement
analysis.
3 Explain and apply horizontal analysis.
4 Describe and apply vertical analysis.
5 Identify and compute ratios used in
analyzing a firm’s liquidity, profitability,
and solvency.
6 Understand the concept of earning
power, and how irregular items are
presented.
7 Understand the concept of quality of
earnings.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
14
IT PAYS TO BE PATIENT
In 2008 Forbes magazine listed Warren Buffett as the richest person in the
world. His estimated wealth was $62 billion, give or take a few million. How
much is $62 billion? If you invested $62 billion in an investment earning just
4%, you could spend $6.8 million per day—every day—forever. How did
Mr. Buffett amass this wealth? Through careful investing.
You think you might want to follow Buffett’s example and transform your
humble nest-egg into a mountain of cash. His techniques have been widely
circulated and emulated, but never practiced with the same degree of
success. Buffett epitomizes a “value investor.” To this day he applies the
same basic techniques he learned in the 1950s from the great value investor
Scan Study Objectives ■
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Benjamin Graham. That means he spends his time
looking for companies that have good long-term
potential but are currently underpriced. He invests in
companies that have low exposure to debt and that
reinvest their earnings for future growth. He does
not get caught up in fads or the latest trend. Instead,
he looks for companies in industries with sound
economics and ones that have high returns on
stockholders’ equity. He looks for steady earnings
trends and high margins.
Buffett sat out on the dot-com mania in the 1990s,
when investors put lots of money into fledgling high-
tech firms, because he did not find dot-com compa-
nies that met his criteria. He didn’t get to enjoy the
stock price boom on the way up, but on the other hand, he didn’t have to
ride the price back down to earth. Instead, when the dot-com bubble burst,
and nearly everyone else was suffering from investment shock, he swooped in
and scooped up deals on companies that he had been following for years.
So, how does Mr. Buffett spend his money? Basically, he doesn’t! He still
lives in the same house that he purchased in Omaha, Nebraska, in 1958
for $31,500. He still drives his own car (a .
Similar to Why Do Balance Sheets Matter? Rodney Christopher (20)
The survey found that nonprofit organizations continue to struggle with increased demand for services due to the lingering effects of the recession and ongoing funding cuts. While some organizations have recovered from the worst impacts, over 85% reported higher demand for services since 2008. Many organizations are unable to meet this growing need as funding has not kept pace. The sector remains stretched thin and feels disconnected from funders and boards. Government funding, which nearly half of respondents rely on, has been unreliable with frequent payment delays, exacerbating financial challenges for nonprofits.
Organizations that can clearly and accurately articulate their financial story and resource needs are better positioned to make a strong case for support. In both good times and bad, your stakeholders will be more engaged if you can provide a data-driven assessment that links your nonprofit’s financial health to its impact and accomplishments. This can inform strategic planning and guide leadership in making mission driven, financially sound decisions.
We've created a worksheet divided into six core areas of nonprofit finance, described in detail in the document:
Revenue
Expenses
Probability and Savings
Health of the Balance Sheet
Liquidity
Financial Planning
Use the worksheet to capture a snapshot of your nonprofit’s strengths and weaknesses. Together, these areas help you balance the three critical components essential to your organization’s long-term viability: Mission, Capacity, and Capital.
This document discusses Pay for Success bonds as a new approach to social program funding. It begins by describing traditional government funding which allocates money to different agencies for various programs without knowing which are truly effective. Pay for Success bonds allow private investors to fund social service providers upfront, and the government only pays if the programs achieve pre-agreed outcomes. This addresses issues of scaling effective approaches and shifting funds based on results. However, there are also challenges around complexity, measurability, and political will. Overall, Pay for Success bonds aim to leverage private capital to expand programs that work, while only spending public money when objectives are met.
This document discusses a new technique for nonprofit organizations to separately report capital and operating revenue in their financial statements in order to provide more transparency. Under the current reporting standards, capital is often mixed in with operating revenue, obscuring the true financial performance and health of the organization. The proposed technique separates capital from revenue to show how capital is being used to fund planned deficits as an organization undergoes changes. It also allows organizations and funders to track progress toward the goal of achieving net operating revenue. The document provides examples of how the capital and operating revenue would be reported separately using this new technique.
The document discusses a new technique for nonprofit financial reporting that separates capital funding from operating revenue. Under the conventional reporting method, capital is treated as regular revenue, obscuring the organization's true operating picture. The proposed method reports capital separately from revenue to show whether capital investments are resulting in increased revenue to cover ongoing costs. It recommends presenting capital releases separately below the change in net assets line for improved transparency. This allows leaders and funders to assess progress toward financial sustainability goals.
This document discusses the need for improved capitalization practices in arts organizations to help them thrive financially and artistically. Most arts nonprofits are "mis-capitalized," meaning they lack the right types and amounts of capital at the right times to support innovation, growth, and artistic excellence. The Leading for the Future initiative aims to address this issue by providing "change capital" grants to 10 arts organizations to help them adapt their programming, operations, and finances in sustainable ways. Principles of improved capitalization could strengthen the field if adopted more broadly by nonprofits and funders.
Pay for Success Projects and Social Impact Bonds: Structuring Considerations ...Nonprofit Finance Fund
In NFF's first SIB e-vent, we held a live web chat exploring the challenges and opportunities of SIB and their potential to develop in the US marketplace. In this second e-vent, experts from The Young Foundation (UK), the Centre for Social Impact (New South Wales), and NFF discussed:
1. What SIB models exist for risk sharing and rewards incentives
2. How other countries have come to determine the right SIB structures for their transactions
3. Initial implications for structuring SIBs/Pay for Success projects in the United States
See this and other resources, including the recording of the live webinar at our Social Impact Bond discussion group, which is free for anyone to join here: http://nonprofitfinancefund.org/sib
The document provides a methodology statement for the Nonprofit Finance Fund's 2011 survey of nonprofit professionals. The survey asked about financial experiences in 2010 and expectations for 2011. It was conducted online between January and February 2011, receiving 1,935 responses. The survey targeted nonprofit managers nationwide through email lists, social media, and regional networks. It contained 32 questions on demographics, finances, revenue sources, and financial/programmatic actions. Results are available aggregated and by sector, geography or other characteristics, but are not statistically weighted.
On the Boards (OtB), a contemporary performance arts organization in Seattle, faced financial struggles after purchasing and renovating a new performance space. Through the Mid-sized Presenting Organizations Initiative funded by the Doris Duke Charitable Foundation, OtB received guidance from the Nonprofit Finance Fund (NFF) over four years. With NFF's help, OtB established operating and building reserve funds, retired all long-term debt, and received a grant to establish an endowment. As a result, OtB strengthened its financial position and long-term sustainability.
This document provides tips for making nonprofit facilities more energy efficient and environmentally sustainable. Some key recommendations include sealing cracks and leaks around windows, doors, and other areas to reduce energy loss, installing programmable thermostats and HVAC filters, replacing old windows with more efficient double-pane windows, installing outdoor shading and planting deciduous trees for shade, and changing lighting to more efficient bulbs and utilizing light-colored paint to reflect existing light. Implementing these low-cost changes can help nonprofits reduce utility bills and maintenance costs while creating a healthier environment.
Telling Your School’s Story through Your Financial Statements: A Lender’s Poi...Nonprofit Finance Fund
This document discusses how charter school financial statements help tell potential lenders the story of a school's past, present, and future financial situation when applying for loans. It outlines the key factors lenders evaluate, including the school's financial systems, historical financial statements like income statements and balance sheets, and forward-looking statements like budgets, cash flow projections, and income statement projections. Being able to clearly articulate the school's financial story through these documents is important for obtaining a loan.
hopeFound: Finding the Way Through Data, Discipline & Dialogue (case study)Nonprofit Finance Fund
hopeFound: Finding the Way Through Data, Discipline & Dialogue
Measuring impact is an ongoing challenge that all nonprofits-- including NFF--are always thinking about. With the multitude of factors that tangle the trajectory from service delivery to long-term outcomes, impact is often a complex picture that doesn't immediately unfold in hard numbers.
Recently, however, we had the chance follow up on an amazing story of long-term impact with hopeFound, a nonprofit dedicated to preventing and ending homelessness in the greater Boston area. hopeFound came to NFF in 2005, in the midst of some serious financial challenges that were posing a threat to the critical services they offer to the community.
Using five years of hopeFound's financial data, we performed a complete business analysis to shed light on their financial situation and provide a road map towards improved organizational health. hopeFound used NFF's findings to transform into a sustainable nonprofit achieving more impact than ever before. Now, a little over 5 years later, hopeFound engaged NFF to perform a second business analysis to clarify their 10-year trajectory of success and help shape a plan for the future.
So how did hopeFound achieve this transformation, and what can all nonprofits learn from this story? Check out the case study below to see how hopeFound combined effective data collection, disciplined planning and decision-making, and transparent communication to take control of their organization's future.
Anjali Deshmukh, Marketing and Communications Manager
The nonprofit organization anticipated a negative economic impact but was able to improve its financial situation through careful cost cutting and program restructuring rather than reducing services. It implemented new expenditure tracking and made afterschool programs more affordable. Increased fundraising, improved operations, and new procurement policies allowed them to add to reserves. Provided these approaches continue, programming should be more sustainable in the future.
Fabular Frames and the Four Ratio ProblemMajid Iqbal
Digital, interactive art showing the struggle of a society in providing for its present population while also saving planetary resources for future generations. Spread across several frames, the art is actually the rendering of real and speculative data. The stereographic projections change shape in response to prompts and provocations. Visitors interact with the model through speculative statements about how to increase savings across communities, regions, ecosystems and environments. Their fabulations combined with random noise, i.e. factors beyond control, have a dramatic effect on the societal transition. Things get better. Things get worse. The aim is to give visitors a new grasp and feel of the ongoing struggles in democracies around the world.
Stunning art in the small multiples format brings out the spatiotemporal nature of societal transitions, against backdrop issues such as energy, housing, waste, farmland and forest. In each frame we see hopeful and frightful interplays between spending and saving. Problems emerge when one of the two parts of the existential anaglyph rapidly shrinks like Arctic ice, as factors cross thresholds. Ecological wealth and intergenerational equity areFour at stake. Not enough spending could mean economic stress, social unrest and political conflict. Not enough saving and there will be climate breakdown and ‘bankruptcy’. So where does speculative design start and the gambling and betting end? Behind each fabular frame is a four ratio problem. Each ratio reflects the level of sacrifice and self-restraint a society is willing to accept, against promises of prosperity and freedom. Some values seem to stabilise a frame while others cause collapse. Get the ratios right and we can have it all. Get them wrong and things get more desperate.
Discover the Future of Dogecoin with Our Comprehensive Guidance36 Crypto
Learn in-depth about Dogecoin's trajectory and stay informed with 36crypto's essential and up-to-date information about the crypto space.
Our presentation delves into Dogecoin's potential future, exploring whether it's destined to skyrocket to the moon or face a downward spiral. In addition, it highlights invaluable insights. Don't miss out on this opportunity to enhance your crypto understanding!
https://36crypto.com/the-future-of-dogecoin-how-high-can-this-cryptocurrency-reach/
[4:55 p.m.] Bryan Oates
OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
Suzanne Spiteri’s recent report on improving the quality and accessibility of job postings to reduce employment barriers for neurodivergent people.
Decoding job postings: Improving accessibility for neurodivergent job seekers
Improving the quality and accessibility of job postings is one way to reduce employment barriers for neurodivergent people.
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
South Dakota State University degree offer diploma Transcriptynfqplhm
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TEST BANK Principles of cost accounting 17th edition edward j vanderbeck mari...Donc Test
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
TEST BANK Principles of cost accounting 17th edition edward j vanderbeck maria r mitchell.docx
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
The Impact of Generative AI and 4th Industrial RevolutionPaolo Maresca
This infographic explores the transformative power of Generative AI, a key driver of the 4th Industrial Revolution. Discover how Generative AI is revolutionizing industries, accelerating innovation, and shaping the future of work.
2. Why Do Balance Sheets Matter? repairs on a building to pursuing new or improved ways
of generating revenue.
Rodney Christopher I will provide a case to introduce how to use the balance
sheets of your applicants and grantees to make an initial
If I have learned anything in my thirteen-plus years of help- assessment of their liquidity, adaptability, and durabil-
ing nonprofit leaders interpret their finances, it is that the ity needs. I will focus on making observations about the
numbers alone can never tell you the full story. Whenever numbers you see and employing two key ratios. To reinforce
possible, I encourage you to have a conversation with an your learning, I encourage you to use a balance sheet from
organization’s leadership if you find that their financials are one of your grantees as you read. I will assume that you
not passing your litmus test. I also urge you to keep in mind understand terms such as assets, liabilities, and net assets
that the knowledge (see the final section,
base and comfort level “Additional Resources,”
with talking about bal- One way to think of the balance sheet is for ways to obtain defini-
ance sheets vary widely tions of financial terms); I
that it can inform us about the kinds and will provide definitions for
across the leadership of
cultural organizations. degrees of financial risk an organization less-common terms.
The field will benefit to faces as it delivers on its artistic mission.
the extent it is possible
So, Let’s Get
for you to gently guide Practical
the groups you support toward clarity, ownership, and dia- Grab the balance sheet of one of your applicants/grantees.
logue about capitalization. Finally, improving capitalization In general, it is best for you to review audited financial
requires time, patience, and celebration of progress. It also statements. Their numbers have been independently as-
requires funders to play a leadership role in using carrots sessed and the notes to the audit, which you should al-
and sticks to encourage and ensure that progress occurs. ways review, can provide helpful details you will not see on
the balance sheet itself. When examining balance sheets, it
If we agree that the capitalization of arts organizations is is also important for you to have the statement of activities
important, and that evidence of capitalization can be found (income statement) nearby. Because the balance sheet is a
on the balance sheet, what should you, as grantmakers, be snapshot in time, it is possible that the audit might present
looking for? an artificially pessimistic (or optimistic) picture at the fiscal
One way to think of the balance sheet is that it can inform year end (FYE). Thus, it is useful to learn about the cyclical
us about the kinds and degrees of financial risk an orga- nature of a grantee’s business; for example, do they get
nization faces as it delivers on its artistic mission. In this most of their cash during a specific three-month window?
context, risk — and its converse, opportunity — has three The sample balance sheet on page 21 is based on that of an
distinct levels: actual theater company — let’s call them the Cider Hill Play-
• Liquidity: Does an organization have adequate access ers (CHP). Below the balance sheet (a.k.a. the Statement of
to cash to meet its operating needs? Financial Position), you will also see the operating expenses
for each of the two years (found on the income statement);
• Adaptability: Does an organization have flexible funds
this will help with our calculations.
that can allow it to make adjustments as its circum-
stances change? What can you see with a quick glance of the CHP balance
• Durability: Does an organization have access to funds sheet? Here are some important details you can identify:
sufficient to address the range of needs that it may face 1. They do not own a building (Property and Equipment,
in future years? net of accumulated depreciation is $6,298 at FYE ’09),
Addressing liquidity is necessary, although for many orga- and the bulk of their property is equipment, sets, and
nizations it can be quite difficult. Healthy liquidity requires costumes that have all but fully depreciated from an ac-
an accumulation of annual operating surpluses (occasional counting standpoint. It is likely that CHP can use some
deficits may be planned or unavoidable) and, where appro- of their items for a few more years; it is also likely that
priate, a line of credit. some replacements are in order.
Funding adaptability and durability are more complex, 2. They have a board-designated reserve ($50,000 at FYE
since surpluses, when they exist and can be set aside as ’08 and ’09 — an audit note might tell us whether
reserves, are rarely sufficient to do the job. Periodic infu- there are any parameters for use of the reserve).
sions of contributed capital and strategic use of long-term 3. They have a line of credit (we don’t know how much
debt are typical strategies to fund long-term needs, which is available — an audit note should tell us that; but we
can range from investments in technology to making major
Grantmakers in the Arts Reader 19
3. do know the line is at least $25,000 as that was the We call this portion of unrestricted net assets “Liq-
amount outstanding at FYE ’09). uid Net Assets.”
Together, these items give us a good entry point. The first Months of Liquid Net Assets (LNA) = the number
involves durability, the second adaptability, while the third of months of expenses that can be covered with the
is linked to liquidity. It is possible to draw some conclusions liquid portion of unrestricted net assets.
about CHP from these three data points, but I generally The formula is more complex: take the total amount
prefer to look deeper. Now take a look at your grantee’s bal- of unrestricted net assets and subtract from it prop-
ance sheet. Jot down some initial observations or questions. erty and equipment (PE, net of depreciation) minus
Then put them aside. After you’ve worked through the facility-related debt. Divide the result by one month’s
balance sheet with this article, go back and see if you have expenses. (Note: generally, board-designated funds
greater insight into what you noted. would be subtracted from unrestricted net assets,
Analysis of balance sheets can be aided by the use of some too. CHP’s balance sheet format takes care of that
ratios. There are limits to the usefulness of ratios when for us.)
applying sectorwide standards, which I mention at the end Unrestricted Net Assets - (PE Net - PE Debt)
of this article. However, within an organization and looking Annual Expenses / 12
year over year, ratios are meaningful. To gain perspective on
the significance of the dollar amounts of the items on the Cider Hill Players has little property and equipment
balance sheet, it is important to relate them to the state- and no facility-related debt, so the calculation is
ment of activities. At Nonprofit Finance Fund (NFF), we fairly basic. In the callout box, we see that at FYE
do so by creating ratios based on operating expenses. ’08, CHP had nearly seven months of LNA, while at
FYE ’09, the amount dipped to about six months.
Liquidity Measures It is safe to say, then, that CHP has strong liquid-
Two such ratios that assess liquidity and, to an extent, ity. When we add their $50,000 board-designated
adaptability are Months of Cash and Months of Liquid Net reserve, we could make a case that they have a
Assets. Each gives you a distinct window. In both cases, we reasonable amount of adaptability as well. How
want to know how long an organization can operate with does your grantee’s balance sheet fare on the liquid-
the funds it has in hand. Let’s look at Months of Cash first. ity measures?
Months of Cash = the number of months of ex- Adaptability and Durability
penses that can be covered with available cash. Beyond liquidity are longer-term risks that cultural organiza-
The formula is fairly straightforward: determine tions are challenged to address. Examples include:
the amount of one month’s expenses by dividing • buffering against unexpected challenges (e.g.,
total expenses by 12; then, divide total cash by recessions)
one month’s expenses.
• seeding support for pursuing new artistic opportunities
Cash
• investing in organizational change that can lead to
Annual Expenses / 12 improved net revenue
On the sample balance sheet on page 21 we see • funding new purchases, upgrades and replacements to
that at FYE ’08, CHP had nearly seven months of property and equipment
cash, while at FYE ’09, the amount dipped to about • providing long-term stability
five months. In general, NFF encourages organiza-
As stated previously, organizations address these capitaliza-
tions to aim for a minimum of three months of cash
tion needs with infusions of capital from strategic debt as
at all times (note that this is a guideline rather than
well as grants and contributions. An additional approach
a firm standard). For those producing and present-
that NFF urges organizations to take is establishing and
ing riskier/less commercial fare, we suggest aiming
building reserves. Reserves help lower the risk of whether
for at least six months. Ideally, for all organizations
funds will be available when they are needed. It is a very
at least three months would be set aside explicitly
rare organization that has sufficient amounts set aside in
in a risk reserve, to be replenished as soon after
reserves to meet all its future needs. And we would not
use as possible.
encourage organizations to move in that relatively impracti-
As a nonprofit’s cash can often be restricted, we cal direction. But, we have seen and do see the wisdom in
also want to measure liquidity against that portion putting a reasonable sum of funds into reserves that can be
of the organization’s net asset base that should be drawn down and replenished as possible.
truly available to cover operations. Such net assets
do not include property and equipment (which can- There is a range of reserves that can provide arts groups
not easily be converted into cash for operations). with a first line of defense or source of opportunity; a
20 Grantmakers in the Arts Reader
4. This sample balance sheet is Analysis of balance sheets can
based on that of an actual be aided by the use of some
theater company — let’s call CIDER HILL PLAYERS ratios. Within an organization
them the Cider Hill Players STATEMENT OF FINANCIAL POSITION and looking year over year,
(CHP). DECEMBER 31, 2009 AND 2008 ratios are meaningful. To gain
perspective on the signifi-
What can you see with a
cance of the dollar amounts
quick glance of the CHP bal-
ASSETS 2009 2008 of the items on the balance
ance sheet? Here are some
sheet, it is important to relate
important details you can
CURRENT ASSETS them to the statement of
identify (FYE = fiscal year
Cash $ 453,728 $ 492,511 activities.
end):
Investments 144,616 144,113
Accounts receivable 9,121 2,400
Grants receivable 41,759 54,167
Prepaid expenses 1,874 8,743 Months of Cash =
Cash
They do not own a building Total current assets 651,098 701,934 Annual Expenses / 12
and the bulk of their property is
equipment, sets, and costumes
PROPERTY AND EQUIPMENT
2009 = 453,728
that have all but fully depreci- Equipment 33,794 38,363
ated. It is likely that CHP can use Production sets, costumes 53,000 53,000 1,074,344 / 12
some of their items for a few Leasehold improvements 15,082 15,082 = 5.1 Months
more years; it is also likely that Less: Accumulated depreciation (95,578) (100,120) 2008 = 492,511
some replacements are in order.
862,296 / 12
Property and equipment (PE), net 6,298 6,325
= 6.9 Months
OTHER ASSETS Above, we see that at FYE ’08,
Security deposit 23,020 22,260 CHP had nearly seven months
of cash, while at FYE ’09, the
Total other assets 23,020 22,260 amount dipped to about five
They have a line of credit (we months. In general, NFF encour-
don’t know how much is avail- ages organizations to aim for
able — an audit note should tell TOTAL ASSETS $ 680,416 $ 730,519 a minimum of three months of
us that; but we do know the cash at all times (note that this
line is at least $25,000 as that is a guideline rather than a firm
was the amount outstanding at standard).
FYE ’09).
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES
Accounts payable 662 5,012
Unearned revenue 5,222 31,600 Months of Liquid Net Assets =
Line of credit, payable 25,000 20,000 Unrestricted Net Assets
- (PE Net - PE Debt)
They have a board-designated Total current liabilities 30,884 56,612 Annual Expenses / 12
reserve ($50,000 at FYE ’08 and
’09 — an audit note might tell us
LONG-TERM LIABILITIES 2009 = 548,667 - (6,298 - 0)
whether there are any param-
eters for use of the reserve). 1,074,344 / 12
Total liabilities 30,884 56,612
= 6.1 Months
NET ASSETS 2008 = 491,840 - (6,325 - 0)
Unrestricted 548,667 491,840
862,296 / 12
Unrestricted, board designated 50,000 50,000
Temporarily restricted 50,865 132,067 = 6.8 Months
CHP has little property and
Total net assets 649,532 673,907 equipment and no facility-related
debt, so the calculation is fairly
TOTAL LIABILITIES $ 680,416 $ 730,519 basic. Above we see that at FYE
and NET ASSETS ’08, CHP had nearly seven
months of LNA, while at FYE ’09,
the amount dipped to about six
months. It is safe to say, then,
that CHP has strong liquidity.
Their $50,000 board-designated
2009 2008 reserve provides a reasonable
amount of adaptability as well.
TOTAL EXPENSES $ 1,074,344 $ 862,296
Grantmakers in the Arts Reader 21
5. few common ones and the balance sheet risks they I would encourage most organizations and funders to focus
address include: first on liquidity and adaptability. Where owning property is
essential for any number of reasons, it is critical that orga-
• Operating cash flow — liquidity and adaptability
nizations have an audience capable of generating sufficient
• Property and equipment — durability revenue to support annual programs and operations as well
• Risk (unexpected challenges and opportunities) as future building needs. If there are two things that cultural
— adaptability groups most need in the environment in which they now
operate, and will operate for years to come, it is liquidity
• Investment (board-designated endowment) — durabil-
and adaptability.
ity, with some adaptability
Analyzing balance sheets for adaptability and durability is Knowing the degree of an organization’s stability can help
not as straightforward assess the best ways to
as it is for liquidity. The help them as grantmak-
first step is to look for Analyzing balance sheets can be a ers. For organizations that
reserves. Few organi- have remained roughly
more valuable exercise when looking the same balance sheet
zations have multiple
reserves; many have
at more than one or two years. Reviewing size for several years, the
none. CHP’s $50,000 is a minimum of three years, preferably first question remains
enough to cover half of five, allows one to understand an whether they have suf-
one month’s expenses ficient liquidity. If not, a
organization’s financial structure grant for a cash reserve
— not a lot, but far
better than zero. Does
and ongoing needs. might be one option. If
your grantee’s balance their liquidity is reason-
sheet show reserves? How sizable are they in relationship able, the next question is whether their fixed assets are
to expenses? If there is a property reserve, what is the dif- substantially depreciated. If they are, then you might look
ference between that amount and accumulated deprecia- at making a grant to replace or upgrade specific fixed as-
tion (on the balance sheet or in the notes)? It is ideal for sets (ideally prioritized by the grantee) or providing funds
the amounts to be somewhat similar, but it is often difficult to start or grow a fixed-asset reserve. Alternatively, if the
to set aside large-enough sums. It is best if your grantee organization makes a strong case that an infusion of capital
has a proper engineer’s assessment of their building’s could help them invest in strategies to improve their earned
needs to determine the size and timing of growth for or contributed revenue, you might provide them with
their property reserve. “change” capital.
In addition to reserves, cultural nonprofits and their sup- Importance of Multiyear Review
porters seek to establish durable institutions. Typically this Analyzing balance sheets can be a more valuable exercise
is accomplished through the purchase of property and the when looking at more than one or even two years. Non-
formation of endowments. CHP has neither. How about profit Finance Fund has found that reviewing a minimum
your grantee? Put simply, buildings and endowments can of three years, preferably five, allows us to understand an
be wonderful for cultural organizations. But I have worked organization’s financial structure and ongoing needs. For
with many organizations that have struggled mightily on some organizations, the shifts in their balance sheet com-
the heels of a major facility project. And I have seen quite a position are minimal over a several-year period; for others,
few that have endowments too small to generate enough there can be substantial growth or downsizing.
money to make a difference — those funds could be put to
much better use in a reserve (even an investment reserve, In the case of the Cider Hill Players, the fact that between
which the board has the power to use for other purposes 2008 and 2009 expenses rose nearly 25 percent ($212,000)
in extraordinary circumstances). while their balance sheet shrank by 7 percent ($45,000)
leads to changes in their liquidity ratios and throughout the
Debt can also be a source of adaptability and durability. balance sheet’s line items. Identifying and interpreting these
When used properly, loans can be an effective tool for changes could fill another article. Suffice it to say we would
capitalizing a healthy organization. Lines of credit offer want to understand the line items that saw the biggest
great flexibility — borrow when the funds are needed, then changes: temporarily restricted net assets, liquid net assets,
repay them when the cash comes in. Longer-term debt can cash and deferred revenue.
allow organizations to improve their durability by financing
purchases of property and equipment and sometimes other A high-level assessment would show that a sizable portion
items. Of course, debt only works when organizations are of CHP’s expense growth was funded by multiyear grant
capable of repaying it. dollars; 2009 resulted in a healthy unrestricted surplus (note:
the statement of activities is needed here); and the spending
22 Grantmakers in the Arts Reader
6. of deferred revenue in 2009, without a similar occurrence of • Be careful not to apply one-size-fits-all criteria with
cash received in 2009 for 2010, accounts for the lion’s share respect to financial health. The challenge with many
of the decline in cash. financial ratios is that setting specific fieldwide targets
(e.g., a minimum of three months of cash) may not
On balance and based on two years of data, CHP has
work well for organizations in all artistic disciplines and
experienced significant change and is maintaining a pretty
geographic regions. The variability of organizations and
healthy balance sheet with strong liquidity and — with a
the relative youth of the nonprofit field currently lend
$50,000 board reserve — a reasonable level of adaptability.
themselves to broad guidelines, rather than prescribed
The critical issue that you will want to know is whether and
expectations. As we progress in efforts to educate our-
how much change your grantee is planning. If they expect
selves about the financial underpinnings of nonprofit
substantial growth, or even downsizing, they may require
cultural organizations, it is likely that we will be able to
significant capital to
move toward establishing
achieve this. If they are
meaningful benchmarks.
expecting incremental To be clear, it is not plausible to be To be clear, it is not
change, the question is:
how well capitalized are
capitalized perfectly. It is, however, plausible to be capitalized
they now? important for the leadership of cultural perfectly. It is, however,
organizations and program officers at important for the leader-
What Can You Do? ship of cultural organiza-
foundations to be conversant about tions and program offi-
The ability of orga-
nizations to pursue
capital needs, and how they will be cers at foundations to be
capitalization strate- prioritized so they can be addressed conversant about capital
gies is compromised by over time. needs, and how they will
long-held but ill-advised be prioritized so they can
“best practices”: be addressed over time.
Otherwise, we all continue to gamble with the health and
• Breaking even each year is enough. vitality of the nonprofit arts landscape.
• Growing unrestricted net assets is always hoarding.
Additional Resources
• Endowments and property ownership provide stability.
GIA’s National Capitalization Project 2010 Summary provides
While your foundation may not expect grantees to follow helpful context and some definitions. It may be found at
these practices, other funders, grantee board members, com- www.giarts.org/article/national-capitalization-project.
munity members, local media, and so on, may make it very
challenging for organizations to build a balance sheet that is A comprehensive glossary of financial terms for nonprofits
able to support their artistic missions for years to come. Here can be found at nonprofitfinancefund.org/financial-terms.
are a few suggestions that I encourage you to consider:
On the Boards: Sustaining a Vibrant Seattle Arts Institution
• Express concern and engage in a dialogue when you is a short case study describing how an organization can im-
see operating deficits for two or more consecutive years prove its capitalization. It can be found at nonprofitfinance-
— especially important when an organization’s liquid fund.org/files/ontheboardsdraft_111010sng.pdf.
net assets are in negative territory.
Top Ten Finance Essentials for Nonprofits and Funders, a
• Build funder partnerships. Capitalizing an organization two-page tip sheet can be found at nonprofitfinancefund.
often requires sizable sums of money. When funders org/files/Top_Tens.pdf.
collaborate, you can choose, for example, to invest
in a third-party analysis of an organization’s financial Case for Change Capital in the Arts (based on NFF’s experi-
health and capitalization strategy before making a ence to date with the Doris Duke Charitable Foundation-
sizable investment. You can similarly choose to obtain funded Leading for the Future initiative) to be released by
third-party expertise in structuring and monitoring NFF this summer.
such investments. Rodney Christopher is vice president, Consulting Services,
Nonprofit Finance Fund (NFF).
• Support or expand existing working capital loan
programs; in some cases, create them. Offer credit
enhancements such as loan guarantees to bank and
Community Development Financial Institurion pro-
grams. One foundation worked with NFF to establish
a new zero-interest loan program in response to the
current recession. The funder provided the capital; NFF
is underwriting and monitoring the loans.
Grantmakers in the Arts Reader 23