32 IMPORTANT FINANCIAL RATIOS FOR EVERY NONPROFIT
Financial ratios are used often in the for-profit industry to analyze profitability. However, the use of financial ratios is just as important to nonprofits as these ratios help measure the financial health of the organization. Nonprofit finance departments that track financial ratios are not only in a better position to evaluate an organization’s operations, programs, and financial stability, the results may also be used to benchmark the organization against management objectives, past performance, and similar organizations and competitors.
To help nonprofits perform ratio analyses, ANAFP has developed a tool with 32 various ratios important to nonprofits, including ratios to measure how much an organization is relying on funding from others, how effective the organization is at fundraising, how efficient the organization is in fulfilling its mission, the ability of the organization to produce potential surplus which could be drawn on in future years, the ability of the organization to fund programs from expendable net assets, and others. The pre-designed ratios in the tool also include descriptions of the analysis performed by each ratio. An example of the tool is shown below.
This tool is an Excel file, which the organization can then populate using information available in the nonprofit’s financial statements and accounting system. For easy updating on a continuous basis, finance staff may take the Excel file and link it to downloaded reports (in Excel) from the accounting system. Doing such will allow the ratios to be updated automatically each time the downloaded files from the accounting system are added to the Excel file.