Budget Ratios

from Financial Management for Nonprofit Organizations

By Zietlow, Hankin and Seidner: John Wiley and Sons, Inc. 2007

Cash Ratio: cash and cash equivalents / current liabilities 

The cash ratio shows the organization’s coverage of near-­‐term financial obligations with cash and cash equivalents. 

Cash Reserve Ratio: cash and cash equivalents / total annual expenses 

Uses the same numerator as the cash ratio but compares it to a year’s worth of operating expenses. This averts the seasonality of liabilities but also provides a “time to ruin” measure – how long, as a fraction of a year, could the organization meet operating expenses if revenues were completely shut off. 

Contribution Ratio: total contribution revenue / total revenue 

Straightforward percentage of how much the organization depends on donated or granted revenues. 

Debt Ratio: total liabilities / total assets 

The degree to which assets are funded with borrowed money. A ratio or 0.25 indicates that one-­‐fourth of all assets are funded by borrowed funds – a higher ratio indicates more risk. 

Return Ratio: total revenue / total assets 

An “efficiency” ratio – how well our asset investment translates into revenues and gains, or financial resources, brought into the organization? Essentially this indicates the “return on investment”. 

Net Surplus = total revenues – total expenses Net operating Ratio: net surplus / total revenue 

Gives the same info as the net surplus except in relative terms. This is analogous to the “net profit margin”. 

Program Expense Ratio: program expenses / total expenses Advanced: break down program expenses per individual programs and look for the “real” cost of each program per athlete, and the corresponding “funding gaps”. 

Support Service (administrative/overhead/fundraising): 100% -­‐ program expense ratio 

This is one of the most important ratios and indicates how much of a priority program delivery is. Many nonprofits strive to keep this ratio at 25% or below – the lower the better. This number should play a big role in your story about the organization. 

For assistance contact: education@ussa.org