The following two financial statements—a statement of activities (profit and loss
summary) and a statement of financial position (balance sheet)—are for the Council
on Social Work Education for fiscal year 1998. (See Tables 5.3 and 5.4.) Review
these two financial statements and compute the following ratios: current ratio,
long-term solvency ratio, contribution ratio, programs/expense ratio, and revenue/
expense ratio.
Comment on each of these ratios. Do the ratios appear high or low? Are the
ratios in keeping with the standards discussed in this chapter? Overall, how would
you describe the financial condition of the Council on Social Work Education? Why
can’t a management and general/expense ratio and fund-raising/expense ratio be
computed?
62 C H A P T E R 5
TABLE 5.2 Richmond, Virginia, Senior Center
Comparative Ratios
Fiscal Years FY01, FY02, and FY03
Current ratio
Long-term
solvency ratio
Contribution
ratio
Programs/
expense ratio
General and
management/
expense ratio
Fund-raising/
expense ratio
Revenue/
expense ratio
FY01
.97
1.10
.35
.60
.25
.15
.95
FY02
.95
1.08
.37
.55
.27
.18
.96
FY03
.93
1.05
.40
.50
.30
.20
.98
Financial
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To compute the ratios for the Council on Social Work Education, you will need to review the statement of activities (profit and loss summary) and the statement of financial position (balance sheet) for fiscal year 1998.
1. Current ratio: This ratio measures the organization's ability to cover short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. For example, if current assets are $100,000 and current liabilities are $50,000, the current ratio would be 2:1.
2. Long-term solvency ratio: This ratio assesses the organization's ability to meet its long-term debts and liabilities. It is calculated by dividing total assets by total liabilities. For example, if total assets are $500,000 and total liabilities are $250,000, the long-term solvency ratio would be 2:1.
3. Contribution ratio: This ratio evaluates the percentage of each dollar of revenue that contributes to the organization's operating revenue. It is calculated by dividing operating revenue by total revenue. For example, if operating revenue is $200,000 and total revenue is $500,000, the contribution ratio would be 40%.
4. Programs/expense ratio: This ratio measures the proportion of total expenses allocated to programs. It is calculated by dividing program expenses by total expenses. For example, if program expenses are $300,000 and total expenses are $600,000, the programs/expense ratio would be 50%.
5. Revenue/expense ratio: This ratio evaluates the organization's ability to cover expenses with revenue. It is calculated by dividing total revenue by total expenses. For example, if total revenue is $800,000 and total expenses are $600,000, the revenue/expense ratio would be 1.33:1.
You should review the financial statements provided in Tables 5.3 and 5.4 to obtain the necessary numbers to compute these ratios.
To comment on each ratio, compare them to industry standards or benchmarks discussed in the chapter. Determine if the ratios are high or low relative to those benchmarks. Assess the financial condition of the Council on Social Work Education based on the ratios calculated and any additional analysis that can be made.
Lastly, the management and general/expense ratio and the fund-raising/expense ratio cannot be computed because the relevant information is not provided in the question or the given financial statements.