Question

Presented below are financial statements (except cash flows) for two not-for-profit organizations. Neither organization has any permanently restricted net assets.

	ABC Not-for-Profit								XYZ Not-for-Profit
Statement of Activities	Unrestricted				Temporarily Restricted				Unrestricted				Temporarily Restricted
Revenues
Program service revenue	$	5,685,000							$	2,178,200
Contribution revenues		3,380,900			$	745,500				3,097,900
Grant revenue						95,400							$	765,300
Net gains on endowment investments		17,800
Net assets released from restriction
Satisfaction of program restrictions		457,800				(457,800	)			364,900				(364,900	)
Total revenues		9,541,500				383,100				5,641,000				400,400
Expenses
Education program expenses		5,712,400								1,521,100
Research program expense		1,356,000								2,201,100
Total program service expenses		7,068,400								3,722,200
Fund-raising		469,700								365,000
Administration		730,000								1,235,000
Total supporting service expenses		1,199,700								1,600,000
Total expenses		8,268,100								5,322,200
Increase in net assets		1,273,400				383,100				318,800				400,400
Net assets January 1		4,308,000				735,000				774,700				197,700
Net assets December 31	$	5,581,400			$	1,118,100			$	1,093,500			$	598,100

STATEMENT OF NET ASSETS	ABC Not-for-Profit						XYZ Not-for-Profit
Current assets
Cash		$	65,400					$	171,300
Short-term investments			165,500						62,400
Supplies inventories			20,400						94,500
Receivables			152,700						55,800
Total current assets			404,000						384,000
Noncurrent assets
Pledges receivable			625,000
Long-term investments			2,790,000
Land, buildings, and equipment (net)			2,140,100						2,058,000
Total noncurrent assets			5,555,100						2,058,000
Total assets		$	5,959,100					$	2,442,000
Current liabilities
Accounts payable		$	23,000					$	122,500
Total current liabilities			23,000						122,500
Noncurrent liabilities
Notes payable			178,500
Total noncurrent liabilities			178,500
Total liabilities			201,500						122,500
Net Assets
Unrestricted			5,715,000						1,391,400
Temporarily restricted			42,600						928,100
Permanently restricted			0						0
Total net assets			5,757,600						2,319,500
Total liabilities and net assets		$	5,959,100					$	2,442,000

Required:
a. Calculate the following ratios (Assume 365 days):

• Program expense.
• Fund-raising efficiency.
• Working capital.

b. For each ratio, which of the two organizations has the stronger ratio.
(Do not round intermediate calculations. Round "Program expense" answers to 1 decimal place and "Fund-raising efficiency" answers to 3 decimal places and "Working capital" answers to nearest whole number.)
  

Answer 1

		Formula	ABC	XYZ
A)	Program Expense	Program Expense/ Total expense	(=7068400/8268100) 0.8549	(=3722200/5322200) 0.699372

It determines how the expense related to a project are related to total expenses of the company.

B) Fund raising ratio determines how efficiently fund has been raised by the company. It is calculated by the following formula:

Fund raising ratio= Unrestricted contribution/ Fund raising expenses

ABC Co= 5,71,5000/ 469700 = 12.16

XYZ co = 1391400/365000= 3.81

C) Working Capital Ratio = It is difference of current assets and current liabilities.

ABC Co = 404000-23000 = 381000

XYZ co= 384000-122500 = 261500