Ratio Analysis Paper

1127 WordsMar 6, 20115 Pages
Ratio Analysis Paper Ratios describe the various relationships among accounts in the balance sheet and income statement. Financial ratios are important and helpful gauges of how an organization is functioning. An organization’s financial health, potential revenue, and even possible bankruptcy can be garnered from financial ratios. Information derived from financial statements is used to calculate most ratios and make projections. “Ratios help investors and lenders determine the risk associated with lending or investing funds in an organization” (GE Financial Healthcare Services, 2003, para 1). According to Finkler and Ward (2006), “the key to interpretation of ratios is benchmarks. Without a basis for comparison, it is…show more content…
The trend shows steady growth over the past three years, which is promising for increased growth into the future. The benchmark for this ratio is the goal set by the board or a comparison to industry peers. Increases in tuition or student enrollment will increase the earned income potential for The Children’s Home, thus raising the self sufficiency ratio for the organization. This could also augment any decreases in government aide. Expense Ratios Personnel Costs Ratio Costs related to staffing generally take up the largest portion of the budget. Adjustments to staffing percentages are easily seen in the budget. Formula: Total wages, taxes and benefit expense / Total expenses = Personnel costs ratio. FS 2010: $1,639,564 / $14,904,356 = 0.11 or 11% FS 2009: $1,446,010 / $14,584,770 = 0.09 or 9% FS 2008: $1,199,759 / $12,678,305 = 0.09 or 9% The Children’s Home maintains a low personnel costs ratio. The trend over the last three years shows a steady staffing percentage with a slight growth. The benchmark for this ratio is set by the board or is by comparison to industry peers. This organization should take note of the fact that, when this ratio is low, there is little room for staff alterations in the face of financial crisis. Administrative Cost Ratio This is an important ratio that nonprofit organizations and supervisory bodies frequently check and assess for changes over time. Formula: Total
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