Understanding Nonprofit Financial Health: Key Ratios and Metrics and How to Calculate Them
This analysis by Steve Zimmerman originally appeared on BlueAvocado.org on April 6, 2009 but has since been updated.
A CFO at a troubled organization told me, “The first and last thing I do in the morning and evening is look at our bank balance and see if we have enough cash to meet our next payroll. The budget looks fine, but cash flow is our biggest problem.” As a board member or ED how can you know whether you should worry? How can you quickly assess the financial health of your organization? Financial ratios serve as one way to answer such important questions. Analyzing these key metrics of nonprofit financial health — Payroll Ratio, Change in Accounts Payable, Revenue-to-Date Ratio, and Restricted Ratio — will give you a quick idea of whether you need to be asking more questions and take some action.
