Finance Highlights 2008 0729 - Laserfiche WebLink

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r Financial Position The Condensed Balance Sheets for DSFRC reveal a steady improvement over the past four years from what was an extremely precarious financial position. In 2004, Net Assets were only $2bK and Unrestricted Net Assets were in a deficit of ($73K). Net Assets serve as a proxy for the financial strength of the organization and for its ability to withstand a difficult financial period without cutting services, defaulting on its obligations, or even having to close its doors. With a $7-8 Million dollar annual budget and only $2bK in Net Assets, the Center was in an extremely tight position. The deficit in Unrestricted Assets indicates that the Center had incurred liabilities in excess of its unrestricted funds, and as a result there was no room for any discretionary spending - existing obligations exceeded available resources. It would not be inaccurate to describe this position as insolvent. By 2007, Net Assets had increased to $31 OK of which $231K were unrestricted. This indicates a return to solvency. As a supplemental indicator of this improvement, we have provided the ratio of Unrestricted Assets to Total Assets, which has changed from -4.7% to 15.3% over the four-year period. This quantifies the improvern~ent in the percentage of assets that are self-financed and unrestricted. Although solvency is restored, however, we are still concerned over the ratio of Net Assets to Annual Budget. This ratio reveals the extent to which the net assets are being leveraged in the operation of the organization. Stated simply, we believe an organization with an annual budget exceeding $9 Million should have more than $310K in equity. In ordinary business terms, the Center is thinly capitalized. Although the dangers of this capitalization are ameliorated by the Center's ability to leverage minimal assets into a high relative volume through its government- sponsored programs, we believe it is important that the organization address this risk with a capital campaign to ensure that the organization can thrive over the long term. Working Capital in 2004 showed a deficit of ($659K). Working capital represents the excess (deficit) of current assets over current liabilities, and is a commonly used measure of an organization's ability to pay its bills on time. The Working Capital Ratio was 0.493 meaning that the Center had only enough Current Assets to pay approximately one-half of its current liabilities. It would not be inaccurate to describe this position as illiquid. By 2007, the Working Capital deficit was reduced to ($127K) and the Working Capital Ratio was up to 0.879. There are many exceptions to this rule, but a working capital ratio of 1.000 is generally considered the benchmark for liquidity. Although this position indicates that there are still some liquidity problems remaining, it is a substantial improvement over the four-year period. The Defensive Interval Ratio is a ratio commonly used to evaluate liquidity in the nonprofit sector. It is defined as Current Assets plus Marketable Securities divided by Average Monthly Expenses. This ratio reflects how many months the organization could 5ustainability Study: Davis Street Family Resource Center - 4/08 Page 5 of 96