Roman Catholic Diocese of Phoenix 2010 Winter Parish Finance Forum Diocesan Pastoral Center February 2 nd, 2010

Finance Forum Agenda Risk Management (Kathy Tuley Presenting) ◦ Catholic Mutual Interactive Video  Fire Safety  Preventing Slips, Trips and Falls ◦ Boy Scout Organization ◦ Review of Transportation Policy Planning and Budgeting - Creating a Master Budget Basic Financial Analysis 2010 Parish Mid-Year Survey Results 6/9/ Winter Finance Forum

Risk Management Catholic Mutual Kathy Tuley 6/9/ Winter Finance Forum

2010 Parish Mid Year Financial Survey Results Numbers Un-official 13 Parishes yet to report Overall Plate Income Decreased 2.5% from 2009 Full Report to be issued (breakdown by Deanery, etc.) Similar format to be used for annual financial report Spring Finance Forum (May) will include full tutorial 6/9/ Winter Finance Forum

Planning and Budgeting - Creating a Master Budget Planning and Strategic Management ◦ Long-term horizon / focus based on the mission and/or vision of the organization  Typically involves senior management  However strategic thinking should extend to all organizational levels – supports cooperation and teamwork  Mission Statement – define organization’s purpose  Grand strategy is developed to ensure the mission is achieved (based on SWOT) 6/9/ Winter Finance Forum

Planning and Budgeting Continued Strategic Planning lays out the detail of the grand strategy ◦ Long- Term Vision (generally 1 to 10 years) ◦ Determines what is to be done, and of how, when, where and by whom it is to be done ◦ Create specific and measurable objectives ◦ Implementing objectives includes development of plans, policies and budgets Strategic plan must filter to all levels of the organization ◦ Organization must have proper structure that is compatible with the strategic plan ◦ Personnel have the necessary abilities ◦ Organizational culture can be changed and modified ◦ Controls exist to facilitate implementation 6/9/ Winter Finance Forum

Planning and Budgeting Continued Controls – similar to internal control discussion ◦ Controls exist to measure performance, allow to determine whether objectives-goals- mission is achieved ◦ IC – Efficiency, Effectiveness, Economy Controls Objectives 6/9/ Winter Finance Forum

Planning and Budgeting Continued Two types of controls exist ◦ Those external:  Marketplace, customer satisfaction, quality ◦ Those internal:  Flexibility, cycle time, financial Examples of items in strategic planning: ◦ Mission Statement, SWOT Analysis and Risk Assessment, developing measurable objectives, capital budgeting and capacity planning 6/9/ Winter Finance Forum

Planning and Budgeting Continued All planning necessarily involves forecasting ◦ A forecast is basically some expression about the future or a future event ◦ Can be qualitative or quantitative ◦ Can be capable of being measured  Recall discussion of Financial Statement Conceptual Framework – data is useful, relevant and reliable – capable of being measured, predictive value, feedback value ◦ Should involve contingency planning, multiple scenarios 6/9/ Winter Finance Forum

Budgeting - Master Budget Budgeting in general is a realistic plan for the future that is expressed in quantitative terms ◦ Way of expressing strategic objectives in monetary terms ◦ Budget is a planning tool, allows to anticipate future events and thus facilitate decision making ◦ Budget is a control tool, helps measure efficiency and economy ◦ Budget can also motivate employees ◦ Budget helps communicate what objectives and goals the organization is trying to reach 6/9/ Winter Finance Forum

Budgeting – Master Budget The master budget covers a specified period of time (fiscal year or operating cycle) Developed using a combination of financial, qualitative and quantitative measures A master budget includes operating and financial budgets An organization should have a budget manual that instructs how the budget is to be prepared (includes a planning calendar) 6/9/ Winter Finance Forum

Master Budget Typical Master Budget components: ◦ Operating Budget:  Sales Budget  Production Budget (Includes DM, DL and Overhead)  COGS Budget  Administrative Budget (Also R&D, distribution, marketing etc.) ◦ Financial Budget: (includes cash budget, capital budget and pro forma financials)  Capital budget is not part of the operating budget  Cash Budget is critical to ensure adequate cash at all times 6/9/ Winter Finance Forum

Master Budgeting Cash Budget Example 6/9/ Winter Finance Forum

Master Budget Key Components for a Parish ◦ Operating Budget ◦ Capital Budget ◦ Financing Budget ◦ Cash Budget 6/9/ Winter Finance Forum

Basic Financial Analysis (Ratio Analysis) Financial Statements and the data contained are presented on absolute dollar terms This accounting data can be restated in relative terms called financial ratios ◦ Doing so helps identify strengths and weaknesses of an organization ◦ Ratios can help determine performance across time (identify trends) ◦ Can compare ratios across an industry or marketplace (compare with other organizations) Restating data in this manner facilitates the decision making process and assists in planning and forecasting 6/9/ Winter Finance Forum

Financial Ratio Analysis Examples: ◦ Standard Ratios exist to determine the liquidity of an organization  Liquidity simply means does the firm have the ability to meet its maturing obligations Current Ratio = Current Assets Current Liabilities ◦ A ratio of 1.0 or higher means the firm can meet its obligations 6/9/ Winter Finance Forum

Financial Ratio Analysis Example: Parish A has $10,000 in its bank account on 6/30/09 Parish A has $15,000 in accounts payable on 6/30/09 What is the current ratio? = $10,000 / $15,000 or.67 This would tell us that Parish A may have trouble meeting its obligations in the near future 6/9/ Winter Finance Forum

Financial Ratio Analysis Return on Assets = Operating Income Total Assets This ratio helps explain how well the firm uses its assets in generating operating income Example: Parochial School A has $100K in Operating Income Parochial School A has $1M in Total Assets What is the ROA? =$100K / $1M or.10 6/9/ Winter Finance Forum

Financial Ratio Analysis By itself, the ROA of.1 does not explain much However, recall that we can use this ratio to compare against ◦ Prior years (trends) ◦ Other firms Example Continued: Parochial School A had an ROA in the 3 previous years of.18,.14,.11 respectively We can now see a trend of declining ROA, meaning the school is less efficient with its assets than in the past Parochial School B has an ROA of.08 This tells us that Parochial School A is more efficient (higher ROA) than others in the marketplace 6/9/ Winter Finance Forum

Financial Ratio Analysis Ratios you will see: Financial Review program – Use current ratio and liquidity ratios to evaluate parish as a going concern Granting Process – Use financial ratios to compare parishes and schools GDP Loan Process – Use Debt Service Coverage Ratio (Operating Cash Flow / Annual Debt Service) and Loan to Value ( Total Loan / Secured Assets) to evaluate creditworthiness Example: 6/9/ Winter Finance Forum

Financial Ratio Analysis How is this relevant to parishes? Can use our financial data to determine: ◦ Do we have adequate resources on hand to meet our needs? ◦ How efficient and effective our we in using our existing assets? ◦ If we do not have adequate resources on hand, how do we acquire new ones? 6/9/ Winter Finance Forum