Professional Documents
Culture Documents
Importance of Ratios:
Current Ratio: Current ratio measures the capability of the company in paying current liability.
Higher the current ratio, better the liquidity position of the company. Generally, a current ratio of
Current ratio of XYZ organization is improving from 0.75 in year 2002 to 0.90 in year 2004. It
indicates that organization is having good liquidity and capable of paying current liability. XYZ
Long-Term solvency Ratio: Long-term solvency ration measure a company's ability to meet
interest and principal payments on long-term debt and similar obligations. It is the best indicator
for assessing long-term solvency risk is a firm’s ability to generate earnings over a period of
years.
that XYZ has improved its ability to meet log-term debt obligations and its log-term solvency is
intact.
Contribution Ratio: Contribution ratio is defined as a ratio of largest revenue from a source and
total revenue. This ratio tells how much a particular source of revenue contributes to gross
margin of the company. It also indicates the dependence of generating profit of a company on a
single source.
Contribution ratio of XYZ is very near to 0.5, which means single source is contributing about
half of the gross margin. XYZ should decrease the dependence on single source.
sales cost. It is not operating expense. High Management expense ratio is not considered good.
Any company will try to reduce its management expenses to control cost.
Management expense ratio is defined as the management expense as a percentage of total cost.
Management Expense ratio has decreased from 29.6% in year 2002 to 22..6% in year 2004. It is
a good indication and shown that XYZ has been able to control its management expenses.
Program Expense Ratio: Program Expense ratio is very important for Non-profit organizations.
It indicates how much of the total expenses of a non-profit organization is program related. High
program expense ratio indicates that non-profit organization is more efficient and it helps the
organization in fund raising. Generally Program expense ratio more than 75% is considered as
good.
Program expense ratio has improved from 70.4% in year 2002 to 77.4% in year 2004. It means
XYZ is improving its efficiency and it will help it to raise fund in future.
Revenue Expense Ratio: Revenue expense ratio tells what is company’s revenue for each dollar
spent by the company. High revenue expense ratio is considered as good and indicates that
company is efficient. Generally, for a commercial firm, Revenue expense ratio is greater than but
In year 2002, XYZ was having Revenue-Expense ratio below 1. By year 2003, XYZ has
achieved Revenue expense ratio of 1.11 and became profit making. This may be the result of
Overall, XYZ Organization is in good financial health. Its has enough liquidity and capability to
meet short term as well as long term debt obligations. Organization is improving its financial
Line Item Budget: In Line item budget, the individual financial statement items are grouped
together by cost centre or departments. It helps in comparing past financial data with current one.
Another advantage to line-item budgets is that they are clear and simple to read. Sometimes
line-item budget provides little information on the overall use of fund and so, it is hard to justify
Program budget : In Program Budget, expenditures are based primarily on programs of work
and secondarily on character. Proposed expenditure in the budget is set by analyzing functions .
It allows top management to focus on objectives for which funds are allocated. It is easy to find
for which function fund is used. However, program budget does not properly evaluates
performance.
different departments. It focuses on objectives and goals of different departments. There are
1. Final Outcome
Advantage of performance budget is, it is easy to segregate good activities from those which are
not expected to give desired result. It outlines the achievements viz.-a-viz. financial outlay set
and goals set for each activity. However, using performance budget is not easy. It is very
All non-profit organizations need money .Traditionally this is known as fund raising. Fund
and it is developing a membership that participates through giving (both as volunteers and
financially). Fund development is more than fund raising. In fund raising, you appeal to the heart
of the contributor which forces the contributor to donate to for charity. In fund development you
appeal not just to the heart, but also to the head in an effort to build a continuing effort and solid
The most common and traditional type of fund development is through fundraising. The most
popular way of fund raising is from local donors. Local support can be acquired through creating
awareness among the local people. Make them understand the work Non-profit organization is
doing. A sponsored community walk may be helpful. Another way of fund raising is through
Silent Auction. A large base of donors can be acquired by advertising, using word of mouth,
having members spread over large geographical area. For a popular organization which is
involved in a program which is rated high by local people, there may be plenty of donors who
Second traditional way of fund development is through the contribution of members which can
aware of the needs of the organization. The success of the organization means individual success
of the member. So, members may be asked to pay an annual membership fee which can be
utilized for funding programs. This method is followed by many churches. This is also a main
source of fund of Rotary International where members are asked to contribute for charity and
social programs. The organization may try to increase the membership base to raise more fund.
More members do not only contribute in terms of money but in terms of loyalty, popularity, faith
and service also. An organizations having more members is able to raise more fund from local
contributors as well. They also help the organization in conducting more number of programs
just fund raising but having alliances for future also, the entrepreneurial way contracts high net
worth individuals, other organizations as well as government. They become a key stakeholder.
As a key stakeholder, they may ask to be a part of management also. In return, they provide
financial stability to the organization. This kind of joint venture is beneficial for the
organization as well as the other party. For example for government, government has the access
to the resources, reach and expertise of the non-profit organization which can be utilized for
social development. In return, government takes care of the financial needs of the organization
promotion and campaign increases the visibility of the organization. It generates awareness in
market about the work the organization is doing and how that work is beneficial for the society.
The non-profit organization tries to convince the people that organization is involved in doing
good work and the fund raised by the organization will be put into good use. This helps the
organization in acquiring more potential clients and users. Well devised marketing strategy will
allow the organization in communicating with the potential contributors and targeting the
individuals who are ready to donate. This type of fund development has long term advantage.
The organization builds reputation, base and reach in society which will help the organization in
future as well.
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