Measuring nonprofit financial performance

By Patrick Frambes, CPA and director, Barnes Dennig

Every organization, no matter what its mission, should periodically measure how well it fulfills that mission and how effectively resources are being utilized in the process. While the specific metrics that each nonprofit adopts to assess its performance will differ, certain key ratios should be used to effectively measure overall performance, identify trends month over month and year over year, improve decision making and benchmark against similar organizations.

To help our nonprofit community, Barnes Dennig has provided a summary of some key ratios below.

Key financial ratios

• Current ratio: A basic measure of financial fortitude. The current ratio simply divides current assets (e.g., cash reserves and investments, real estate, vehicles and equipment) by current liabilities (e.g., taxes, lease agreements and salaries). The resulting number represents the ability of the nonprofit to meet short-term obligations. Generally speaking, a current ratio exceeding one indicates an ability to meet existing obligations.

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