Financial Statement Analysis Justin Marlowe PUBPOL 522 - Public Financial Management and Budgeting Autumn 2017

Recall our Learning Objectives Compute and interpret ratios that describe liquidity, profitability, and solvency. Contrast how those ratios mean slightly different things across the government, non-profit, and for-profit sectors. Compute the “Ten Point Test” for governments. Understand the typical strategies organizations employ to improve their liquidity, profitability, and solvency. Contrast short-term solvency with long-term solvency, particularly for governments.

Financial Statement Ratios: Liquidity Current Ratio Days of liquid net assets Quick ratio Days of cash on hand Operating cash flow (hybrids/for-profits)

Financial Statement Ratios: Profitability Operating Margin Net Asset Growth Return on Assets Return on Equity Inventory Turnover (hybrids/for-profits)

Financial Statement Ratios: Solvency Debt to Assets Contributions ratio Government revenue ratio Working capital to total assets Total equity

Can a non-profit be liquid, but not profitable? Examples? Financial Statement Ratios: Interactions Can a non-profit be liquid, but not profitable? Examples? Can a non-profit be profitable, but not liquid? Examples? Can a non-profit be profitable, but not solvent? Examples? Can a non-profit be liquid, but not solvent? Examples?

The “Ten Point Test” for Local Governments Short-Run Financial Position Liquidity Net Asset Growth Operating Margin Own-Source Revenue Near-Term Solvency Debt Burden Coverage 1 Coverage 2 Capital Asset Condition Liquidity Profitability Solvency