Are there key ratios or standards for tracking finances for nonprofits?
Key ratios are mathematical calculations that provide important indicators of an organization’s financial health. For example many organizations indicate they need to maintain a 2:1 “cash ratio” (cash and equivalents/current liabilities). Other common ratios to track are the net operating ratio (net surplus/total revenue) and the program expense ration (program expenses/total expenses). However, there are no established “correct” key ratios or standards. These ratios should be determined by each organization and reported regularly to the board of directors with indications of changes in the ratios. Tracking ratios over a period of time will provide the board of directors and management important information about the organization’s financial trends and needs. There are a number of nonprofit watchdog organizations that can help provide information regarding important ratios. They include: BBB Wise Giving Alliance; Guidestar; ePhilanthropy Foundation, Guidestar, United Way and the Americ
