1. 1 Presentation For Leaders Tri-Philippine Union LEAD Conference February 17, 2014 An Introduction to Financial Analysis II Ann Gibson, PhD, CPA Andrews University 1

2. 2 Financial Statements Statement of Financial Position: Reports resources, obligations, and residual ownership claims Statement of Financial Activity: Reports revenues, expenses, gains, losses for a specific period of time

5. Financial Statements Statement of Changes in Net Assets: Summarizes activity for each function and shows net increase or decrease for the period Statement of Cash Flows Reports cash “inflows” and “outflows” during the period 5

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8. Analyzing the Financial Statements Summary: 8 20X1 20X0 Acid Test Ratio Current Ratio 2.18 2.37 2.68 2.98 Ratio of Self- Support 65.5% 55.6% Ratio of Payroll Expense to Tithe 72.7% 82.3% Debt Percentage 78.1% 55.4%

9. Questions to Ask 1. What factors made the cash and the investments increase in 20X1? 2. What proportion of the investments increase was due to market changes? 3. What proportion of the Accounts Receivable are with the higher organization (and thus collectible)? 4. What proportion of the Accounts Receivable are considered to be of questionable collectibility? 9

10. Questions to Ask 5. What is the primary “driver” for the increase in accounts payable at year-end? 6. Why are the Agency Accounts higher in 20X1 than in 20X0? What caused the increase? 7. There is a new note payable in the Plant Fund for 1,000,000. What property was purchased? Who holds the note? What are the terms of the note? 10

11. Questions to Ask 8. Are there any contingent liabilities? 9. Are there any concentrations of risk for the organization? 10. What is the organization’s working capital percentage? 11

12. Analyzing the Financial Statements Rules for data selection for financial analysis: Measure accounts, balances, or activities for which: a. The results of analysis would trigger the need for a management decision. 12

13. Analyzing the Financial Statements b. The decision is not obvious but would be of consequence to the organization. c. The results can have significant repercussions for constituents, affiliated entities, or financial performance. 13

14. Analyzing the Financial Statements d. Key management or committee members have expressed a desire to know. 14

15. Analyzing the Financial Statements Each not-for-profit sector uses its own unique ratios For example, hospitals analyze their activities on a patient-day or per-bed basis Educational institutions use a per-student or a per- course basis 15

16. Analyzing the Financial Statements Statement of Cash Flows provides information on: The organization’s ability to generate positive future net cash flows The organization’s ability to meet its obligations The organization’s need for external financing 16

17. Analyzing the Financial Statements The Statement of Cash Flows is divided into: Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities When the three sections are totaled the Statement of Cash Flows explains how the beginning cash balance was converted to the end-of-the-period cash balance 17

19. Any Questions? Thank you! Are there any questions? 19