1. Financial Statement Analysis
Justin Marlowe
PUBPOL Public Financial Management and Budgeting
Autumn 2017

2. 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.

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

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

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

6. 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?

7. 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