Metrics For Nonprofit Organizations

So you are a potential donor, board member or the new executive director looking at the latest financial statements or 990 and wondering how do I know if this is good or bad.   There are a few key items to look for to give you a greater degree of comfort or alternatively, raise a yellow or red flag.

Statement of Financial Position or Balance Sheet

  • How many days can they operate based on the cash they have?
  • Do their liabilities exceed the cash and receivables for grants and pledges?
  • Are the net assets negative?
  • Do the liabilities exceed the net assets?
  • Are there any temporarily restricted net assets?
  • Are unrestricted net assets at least 25% of annual expenses?

Statement of Activities or Income Statement

  • Is there a mix of funding sources – contributions, program income, grants and contracts, investment income?
  • Is the unrestricted change in net assets positive
  • Is there a good mix of program, management and fundraising expenses?

These questions, in addition to learning about the operations of an organization will provide you with a good start in evaluating the financial health of the nonprofit organization.