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.