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HSM-260 ~ Final Paper ~Analyzing Financial Statements

# HSM-260 ~ Final Paper ~Analyzing Financial Statements -...

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Running head: ANALYZING FINANCIAL STATEMENTS 1 Analyzing Financial Statements Anna Borsick HSM/260 January 21, 2012 Marilyn Walker

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ANALYZING FINACIAL STATEMENTS 2 Analyzing Financial Statements FINANCIAL ANALYSIS RATIOS TABLE 2002 2003 2004 Current Ratio 104,296.00/139,017.00 = . 75 82,058.00/93,975.00 = .87 302,902.00/337,033.00 = . 90 Long-Term Solvency Ratio 391,270.00/310,246.00 = 1.26 359863.00/259979.00 = 1.39 699004.00/338937.00 = 2.06 Contribution Ratio 617,169.00/1,165,065.00 = .53 632889.00/1244261.00 = . 51 1078837/2191243.00 = .49 General and Management/Expense Ratio 351, 000.00/1,185,008.20 = .30 371,101/1,316,681 = .28 445,819.00/1,972,131 = .23 Programs/Expense Ratio 834,008/1,185,008 = .70 865,691.77/1,316,681 = . 66 1,410,312.72/1,972,131.72 = .72 Revenue/Expense Ratio 1,165,065.00/1,185,008.00 = .98 1244261.00/131681 = . 94 2191243.00/1972131 = 1.11 Accounting can be confusing and sometimes time consuming, but it is essential in managing the financial matters of a non-profit human service agency. Financial analysis can be defined as the process of using the information provided by financial statements to calculate financial ratios that assess the financial condition of human service agencies (Hertzlinger & Rittenhouse, 1994:133) (Martin, 2001, p. 55). In non-profit human services there are seven basic financial ratios analysis types; (1) the current ratio, (2) the long-term solvency ratio, (3) the contribution ratio, (4) the programs/expense ratio, (5) the general and management/expense ratio, (6) the general and management/expense ratio, and (7) the revenue/expense ratio (Martin, 2001, p. 55). The purpose of the current ratio is to assess private nonprofit human service agencies liquidity. Liquidity of assets means the extent to which an agency has cash or other assets that can be converted into cash quickly that can cover current operating expenses (Martin, 2001, p. 56). An agency wants to be at a least 1.0 in general, anything under this interpretation the agency is facing problems with the liquidity of their assets. When referring to the long-term solvency ratio; it is assessing the long-range financial solvency of a non-profit human service agency’s
ANALYZING FINACIAL STATEMENTS 3 annual expense as they come due by using total assets, divided by current liabilities, to obtain the long-term solvency ratio needed to predict availability of funds to pay future expenses. The ratio that XYZ Corporation is looking for is a 1.0 or above, anything under this interpretation puts the corporation in jeopardy of facing questions about the viability of the corporation. XYZ Corporation receives most of its funding from grants and customer fees. With the bulk of funding coming from the government, this corporation is dependent on the continued finances from a government entity. The use of a contribution ratio for XYZ Corporation is for purpose of assessing what entity (funder) they are most dependent on. The contribution ratio is determined

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HSM-260 ~ Final Paper ~Analyzing Financial Statements -...

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