Understanding Financial Statements
Prepared for Delaware Valley
Grantmakers
11/2011
Katherine Reilly, CMA
karegd@verizon.net
Introduction
• Why read financial reports?
• What do they tell you?
• Should they receive a grant?
• Would you want to be on the Board?
Agenda
Financial Reports
Statement of Financial Position
Statement of Financial Activity
Statement of Cashflow
Statement of Functional Expenditure
Ratios
Audits vs 990
Operating Reserve
Types of Financial Reports
Statement of Financial Position
Balance Sheet - Snapshot
Statement of Financial Activity
Income Statement – Period of time
Statement of Cashflow
Cash
Statement of Functional Expenditure
Uses of the income by program, fundraising,
management.
Types of Financial Systems
• Cash Based
– Income recorded when received
– Expenses recorded when received
– Advantages & disadvantages
• Accrual Based
– Income recorded when notified
– Expenses recorded when bill is received
– Advantages & disadvantages
• Modified Accrual
Statement of Financial Position
Assets – What you own
Liabilities – What you owe
Net Assets-What you own minus what you owe
Unrestricted – No donor imposed restrictions
Designated – Board determines use
Temporarily Restricted – Restricted as to time and/or purpose
Permanently Restricted – Only interest or income can be used
Assets = Liabilities + Net Assets
Statement of Financial Activity
Income – Contributions that arrive or is owed you
Contributions – Money, some in-kind contributions
Use of temporarily restricted funds
Accounts Receivable = Income
Expenses – Outflow
Accounts Payable = Expenses
Net Income – Income minus expenses
ABC NONPROFIT ORGANIZATION
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2010 AND 2009
ASSETS
2010
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, Fee for Service contracts, net of
allowance for doubtful accounts of $25,000 and $40,000
at June 30, 2010 and 2009, respectively
Accounts receivable, other, net of allowance for doubtful
accounts of $100,000 and $96,000 at
June 30, 2010 and 2009, respectively
Total current assets
PROPERTY AND EQUIPMENT
Furniture and equipment
Leasehold improvements
$
850,000
$
80,000
700,000
692,000
1,570,000
$ 1,645,000 $2,350,000
1,400,000
220,000
1,620,000
1,320,000
300,000
Less accumulated depreciation and amortization
Total property and equipment
Total Assets
103,000
2009
$ 1,945,000
1,180,000
220,000
1,400,000
1,240,000
160,000
$2,510,000
LIABILITIES AND NET ASSETS
LIABILITIES
Accounts payable
Deferred Revenue
Accrued salaries and vacation
Line of credit
Total current liabilities
NET ASSETS
Unrestricted
Temporarily restricted
Total net assets
Total Liabilities and Net Assets
$
605,000 $ 400,000
45,000
947,000
750,000
100,000
250,000
$ 1,697,000 $1,400,000
$
$
65,000 $ 650,000
160,000
460,000
225,000 $1,110,000
$ 1,922,000
$2,510,000
ABC NONPROFIT ORGANIZATION
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2010 AND 2009
ASSETS
2010
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, Fee for Service contracts, net of
allowance for doubtful accounts of $25,000 and $40,000
at June 30, 2010 and 2009, respectively
Accounts receivable, other, net of allowance for doubtful
accounts of $100,000 and $96,000 at
June 30, 2010 and 2009, respectively
Total current assets
CURRENT LIABILITIES
Accounts payable
Deferred Revenue
Accrued salaries and vacation
Line of credit
Total current liabilities
2009
$ 103,000 $
80,000
850,000
700,000
692,000
1,570,000
$ 1,645,000 $ 2,350,000
$ 628,000 $ 400,000
45,000
947,000
750,000
100,000
250,000
$ 1,720,000 $ 1,400,000
ABC NONPROFIT ORGANIZATION
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2010 AND 2009
ASSETS
2010
PROPERTY AND EQUIPMENT
1,400,000
Furniture and equipment
220,000
Leasehold improvements
1,620,000
1,320,000
Less accumulated depreciation and amortization
300,000
Total property and equipment
2009
1,180,000
220,000
1,400,000
1,240,000
160,000
ABC NONPROFIT ORGANIZATION
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2010 AND 2009
2010
2009
NET ASSETS
Unrestricted
Temporarily restricted
Total net assets
$
$
65,000 $ 650,000
160,000
460,000
225,000 $ 1,110,000
ABC NONPROFIT ORGANIZATION
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2010 AND 2009
ASSETS
2010
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, Fee for Service contracts, net of
allowance for doubtful accounts of $25,000 and $40,000
at June 30, 2010 and 2009, respectively
Accounts receivable, other, net of allowance for doubtful
accounts of $100,000 and $96,000 at
June 30, 2010 and 2009, respectively
Total current assets
PROPERTY AND EQUIPMENT
Furniture and equipment
Leasehold improvements
$
850,000
$
80,000
700,000
692,000
1,570,000
$ 1,645,000 $2,350,000
1,400,000
220,000
1,620,000
1,320,000
300,000
Less accumulated depreciation and amortization
Total property and equipment
Total Assets
103,000
2009
$ 1,945,000
1,180,000
220,000
1,400,000
1,240,000
160,000
$2,510,000
LIABILITIES AND NET ASSETS
LIABILITIES
Accounts payable
Deferred Revenue
Accrued salaries and vacation
Line of credit
Total current liabilities
NET ASSETS
Unrestricted
Temporarily restricted
Total net assets
Total Liabilities and Net Assets
$
605,000 $ 400,000
45,000
947,000
750,000
100,000
250,000
$ 1,697,000 $1,400,000
$
$
65,000 $ 650,000
160,000
460,000
225,000 $1,110,000
$ 1,922,000
$2,510,000
Statement
of
Financial
Activity
ABC NONPROFIT ORGANIZATION
STATEMENT OF ACTIVITIES
YEAR ENDED JUNE 30, 2010 with JUNE 39, 2009
Temporarily
Unrestricted
Restricted
PUBLIC SUPPORT AND REVENUE
Public support
Contributions and grants
$
225,000 $
20,000 $
Special fund raising events, net of
$125,000 of related expenses
115,000
Contribution of facility space
120,000
Net assets released from restrictions
320,000
(320,000)
Total public support
$
780,000 $
(300,000) $
Revenue
Fee for Service
$
10,200,000 $
$
Governmental Contracts
4,400,000
Grants
650,000
Other
170,000
Interest
5,000
Total revenue
15,425,000
Total public support and revenue
EXPENSES
Program services
Fund raising
Management and general
Total expenses
CHANGES IN NET ASSETS
Net assets, beginning of year
Net assets, end of year
$
16,205,000 $
13,830,000
280,000
2,680,000
16,790,000
(585,000)
650,000
65,000
2009
Total
Total
245,000
115,000
120,000
480,000
$
500,000
$
150,000
120,000
770,000
10,200,000
4,400,000
650,000
170,000
5,000
15,425,000
$
8,400,000
3,400,000
650,000
150,000
7,500
12,607,500
(300,000) $
15,905,000
$
13,377,500
-
13,830,000
280,000
2,680,000
16,790,000
10,700,000
190,000
2,750,000
13,640,000
(885,000)
1,110,000
225,000
(262,500)
1,372,500
1,110,000
(300,000)
460,000
160,000
Income 2009 & 2010
Contributions
Fund raising events
Contribution-space
Fee for Service
Governmental
Contracts
Grants
Other
Interest
%
2010
2009
Change
$
245,000 $
500,000
-51%
115,000
150,000
-23%
120,000
120,000
0%
$ 10,200,000 $ 8,400,000
21%
4,400,000
3,400,000
650,000
650,000
170,000
150,000
5,000
7,500
15,905,000 13,377,500
29%
0%
13%
-33%
19%
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$-
2010
2009
Income 2009 & 2010
Temporarily
Restricted
PUBLIC SUPPORT AND REVENUE
Public support
Contributions and grants
Special fund raising events, net of
$125,000 of related expenses
Contribution of facility space
Net assets released from restrictions
Total public support
Revenue
Fee for Service
Governmental Contracts
Grants
Other
Interest
Total revenue
Total public support and revenue
EXPENSES
Program services
Fund raising
Management and general
Total expenses
CHANGES IN NET ASSETS
Net assets, beginning of year
Net assets, end of year
$
20,000
$
(320,000)
(300,000)
$
$
(300,000)
(300,000)
460,000
160,000
Expenses
EXPENSES
Program services
Fund raising
Management and general
Total expenses
2010
2009
%
change
13,830,000
10,700,000
29%
280,000
190,000
47%
2,680,000
2,750,000
-3%
16,790,000
13,640,000
23%
Why do you need a balance sheet
& an income statement
•Balance sheet
• Cash position
• Types of assets
• Amount of liabilities
• Net assets – Unrestricted vs restricted
•Income Statement
• Current income – type and amount
• Current expenses – type and amount
• This year compared to last year and to budget
Linking Statements
NET ASSETS (Statement of Financial Position)
2010
2009
Unrestricted
$ 65,000 $
650,000
Temporarily restricted
160,000
460,000
Total net assets
$ 225,000 $ 1,110,000
Statement of Financial Activity
Unrestricted
CHANGES IN NET ASSETS
(585,000)
Net assets, beginning of year
650,000
Net assets, end of year
65,000
Temporarily
Restricted
(300,000)
460,000
160,000
2010
Total
(885,000)
1,110,000
225,000
2009
Total
(262,500)
1,372,500
1,110,000
Statement of Financial Position
Statement of Financial Position - Master Inc.
Assets
Cash & Cash Equivalents
Accounts Recievable
Bequest Receivable
Prepaid Expenses
Inventory
Investments
Trusts
Property, Plant, Equipment
Total Assets
Liabilities and Net Assets
Liabilities
Accounts Payable
Other Payable
Deferred Revenue
Funds held for others
Pension liability
Total Liabilities
Net Assets
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Net Assets
Total Liabilities and Net Assets
2009
997,387
616,346
500,000
29,181
63,831
19,796,636
19,356,658
7,427,156
48,787,195
2008
1,217,056
662,707
45,043
64,821
17,131,263
25,088,666
7,268,869
51,478,425
366,427
152,030
12,737
314,707
654,551
1,500,452
484,843
166,387
49,995
396,257
644,121
1,741,603
9,363,531
19,949,016
17,974,196
47,286,743
48,787,195
10,742,024
25,439,979
13,554,819
49,736,822
51,478,425
Statement of Financial Activity - Master Inc.
For the years ended June 30, 2009 & 2008
Unrestricted
Temporarily
Restricted
Permanently
Restricted
2009
Total
2008
Total
Support and Revenue
Statement
of
Financial
Activity
Grants
Contracts
Contributions
Bequest
Board Support
Fee income
Investment income
Net Assets released
Total Support and Revenue
314,053
1,000,000
426,711
292,795
1,000,000
512,523
6,639,659
314,053
1,000,000
554,948
6,639,659
272,822
1,035,213
2,232,995
12,049,690
158,366
(5,649,329)
6,639,659
(2,220,282)
2,427,129
71,849
82,317
1,639,393
632,834
198,227
219,182
34,581
201,406
147,363
25,452
5,679,733
6,369,957
(8,820,036)
2,290,487
56,673
69,292
1,735,118
431,897
227,635
162,685
38,752
191,138
161,447
32,008
5,397,132
(185,857)
(4,684,558)
25,439,979
19,949,016
13,554,819
17,974,196
49,736,822
47,286,743
54,607,237
49,736,822
128,237
6,639,659
272,822
1,035,213
1,780,430
422,436
5,251,665
452,565
(422,436)
158,366
254,657
787,002
2,364,298
5,211,275
Expenses
Salaries & Benefits
Training & travel
Volunter expenses
Event costs
Contracted Services
Communications
Rent
Insurance
Repairs & Maintenance
Depreciation
Miscellaneous
Change in net assets
Unrealized gains (losses)
Net Assets beginning
Net Assets ending
2,427,129
71,849
82,317
1,639,393
632,834
198,227
219,182
34,581
201,406
147,363
25,452
5,679,733
(428,068)
(950,425)
10,742,024
9,363,531
T
r
e
n
d
s
Support and Revenue
Grants
Contracts
Contributions
Board Support
Fee income
Investment income
Total Support and Revenue
Expenses
Salaries & Benefits
Training & travel
Volunter expenses
Event costs
Contracted Services
Communications
Rent
Insurance
Repairs & Maintenance
Depreciation
Miscellaneous
Bequest
2009
Total
2008
Total
314,053
1,000,000
554,948
272,822
1,035,213
2,232,995
5,410,031
292,795
1,000,000
512,523
254,657
787,002
2,364,298
5,211,275
7%
0%
8%
7%
32%
-6%
4%
2,427,129
71,849
82,317
1,639,393
632,834
198,227
219,182
34,581
201,406
147,363
25,452
5,679,733
2,290,487
56,673
69,292
1,735,118
431,897
227,635
162,685
38,752
191,138
161,447
32,008
5,397,132
6%
27%
19%
-6%
47%
-13%
35%
-11%
5%
-9%
-20%
5%
6,639,659
% Change
Income Trends
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
Grants
2009
2008
Contracts
Contributions
Board
Support
Fee income
Investment
income
Expense Trends
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
2009
2008
Statement of Cashflow
For the years ended June 30, 2009 & 2008
Operating Activities
Cashflow
Statement
Change in net assets
Depreciation
Net realized/unrealized loss
Changes in
Property & investments values
Accounts Receivable
Prepaid Expenses
Inventory
Accounts Payable
Other Payable
Deferred revenue
Funds held for others
Pension
Net cash utilized by operating activities
2009
(2,450,079)
147,363
3,382,628
2008
(4,870,415)
161,447
2,314,409
(1,202,251)
46,361
15,862
990
(118,416)
(9,057)
(37,258)
(45,250)
10,430
(258,677)
2,370,149
(124,400)
(1,390)
(8,698)
191,422
(30,204)
(30,720)
(42,396)
17,464
(53,332)
(6,048,002)
(52,649)
(6,100,651)
288,363
(113,215)
175,148
Investing activities
Net proceeds from purchases (invest.)
Purchase of property & equipment
Net cash provided by (used for) investing
Cash flows from financing
Contributions restricted
6,139,659
Increase (decrease) in cash
Cash and cash equivalents at beginning
Cash and cash equivalents at end of year
(219,669)
1,217,056
997,387
121,816
1,095,240
1,217,056
Statement of Functional Expenditures
Statement of Functional Expenses - Master Inc.
For the years ended June 30, 2009 & 2008
Program
Services
Salaries & Benefits
Training & travel
Volunter expenses
Event costs
Contracted Services
Communications
Rent
Insurance
Repairs & Maintenance
Depreciation
Miscellaneous
1,650,266
55,058
79,410
1,634,796
410,886
112,083
122,976
12,518
10,500
35,000
22,609
4,146,102
73%
Management &
General
526,477
11,483
1,725
1,521
207,291
52,250
85,164
21,496
190,295
112,363
201
1,210,266
Fundraising
250,386
5,308
1,182
3,076
14,657
33,894
11,042
567
611
2,642
323,365
32%
2009
2008
Total
Total
2,427,129
71,849
82,317
1,639,393
632,834
198,227
219,182
34,581
201,406
147,363
25,452
5,679,733
2,290,487
56,673
69,292
1,735,118
431,897
227,635
162,685
38,752
191,138
161,447
32,008
5,397,132
Project budget
Project Budget
Income
Your foundation
Other grant applications
Agency funds
Total Income
Expenses
Salary & Benefits
Event costs
Contracted Services
Program materials
Office supplies
Communications costs
Rent
Transportation
Insurance
Total Expenses
Net
$
50,000
80,000
22,000
$ 152,000
60,000
30,000
18,000
15,000
8,000
8,000
8,000
3,500
1,500
$ 152,000
$
-
Types of Reports Prepared by CPA firms
Audit – Highest form of reliability, detailed analysis &
transaction testing (on a sample basis), provides
assurance that the statements present fairly the financial
position
Review – Limited to an analytical review with no detailed
transaction testing, variation analysis performed to
compare current year with prior years for
reasonableness, provides limited assurance about the
financial position
Compilation – Involves converting raw financial
information into a readable format, no opinion is
expressed
Independent Auditors Report
To the Board of Directors of the Hope Agency
We have audited the accompanying consolidated statement of financial position of Social Service
Agency as of June 30, 2006, and the related consolidated statements of activities, functional
expenses, and cash flows for the year then ended. These financial statements are the
responsibility of the Organization's management. Our responsibility is to express an opinion
on these financial statements based on our audit. The prior-year summarized comparative
information has been derived from the Organization's 2005 financial statements and, in our
report dated October 25, 2005, we expressed an unqualified opinion on those financial
statements.
We conducted our audit in accordance with U.S. generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Social Service Agency and Affiliates at June 30,
2006, and the changes in their net assets and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting principles.
Your Friendly Audit Firm
Philadelphia, Pennsylvania
October 27, 2006
Management Letters
• Internal Controls
– Auditor must evaluate control deficiencies
and determine if they are significant
deficiencies or material weaknesses
• Preparation of reports
– Auditor will determine if the client is capable
of preparing the financial statements and if
the client has the skills and competencies
necessary to prevent, detect, and correct a
material misstatement
• Other matters
Audit & 990
Audit
Total
Support and Revenue
Rental Revenue
Form 990
990 p.1
Total
1,617,242
Contributions & grants
Program Service revenue
Investment income
553,554
1,696,858
5,073
Other
-
510
2,255,995
Participation Fees
Contributions
Miscellaneous
Total Support and Revenue
79,616
188,889
510
1,886,257
Total Expenses
1,369,916
1,476,798
Contributions permanently restricted
Investment income (loss)
Change in beneficial interest
Loss on disposition of assets
Change in net assets
Total difference
364,665
8,073
(3,000)
(106,882)
1,632,772
779,197
779,197
(364,665)
(79,616)
(106,882)
Financial Ratios
Quick ratio – Cash divided by payables. Is it 1 or greater?
Current ratio –
Current Assets divided by Current Liabilities
Is it 1 or greater?
Debt to Equity - Long term debt divided by total net assets
Is it less than .50?
Increase in net assets
(Current year’s net assets minus prior year’s net
assets )divided by prior year’s net assets
Is it greater than the rate of inflation?
Fixed Ratio - Fixed Assets divided by total assets. The lower the number the
more liquid the assets
Overhead cost - Management & fundraising costs divided by total expenses
Is it less than .30? (Could vary depending on type)
Ratios
Quick ratio
Current Ratio
Debt to Equity
Increase in net assets
Fixed ratio
Overhead cost
ABC
Master
0.16
1.92
0.96
2.53
None
0.01
(0.80)
(0.05)
0.15
0.15
0.18
0.27
Ratios
Quick ratio
Current Ratio
Debt to Equity
Increase in net assets
Fixed ratio
Overhead cost
ABC
Master
0.16
1.92
0.96
2.53
None
0.01
(0.80)
(0.05)
0.15
0.15
0.18
0.27
Operating Reserve Information
Operating Reserve Policy Toolkit for Nonprofit Organizations (September 2010
Sponsored by the National Center for Charitable Statistics, Center on
Nonprofits and Philanthropy at the Urban Institute and United Way Worldwide
(http://www.nccs2.org)
Why does an organization need an operating reserve?
Unexpected shortfall in revenue
Unexpected demands on your resources
Unanticipated opportunities
Less than perfect judgment and foresight
A change in direction that is needed
Day to day fluctuations in income and expense
Seasonal fluctuations
Board Designated Operating Reserves
Board designated operating reserves are that portion of unrestricted net
assets that the Board establishes for the organization to use in case
of an emergency or an unexpected event.
According to the Nonprofit Operating Reserves Initiative Working Group
the minimum operating reserve ratio should be 25% or three months
of the annual expense budget.)
Funding the operating reserve – the funds must come from unrestricted
income and need to represent cash that is set aside. One method is
to “fund depreciation”, another is to set aside a certain amount each
year.
Questions