PA 650 (WANG Chp 7) Financial Performance Monitoring
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Purpose of Financial Performance Monitoring
- 1. Ongoing check on the budget
- 2. Uncover inefficient practices and operations
- 3. Avoid further deterioration of financial condition
Three elements in financial monitoring
- Indicators that assess financial performance
- Techniques to detect unacceptable financial performance
- Techniques to diagnose causes of under performance and to provide suggestions for performance improvement.
- Evaluate an organization's financial operations and financial condition. Three categories:
- 1. Financial Input Indicators
- 2. Financial Process Indicators
- 3. Financial Results Indicators
Assess elements of a organization's performance that are not characterized by financial transaction, financial operations, or monetary success. Ex citizen/client satisfaction
Financial Input Indicators
Assess the availability of financial resources and the level of financial resource consumption
Total Revenues/Revenues per Capita
Financial Input Indicator. Indicate the level of resources available for service provision.
Total Expenditures/Expenditures per Capita
Financial Input Indicator. Level of resources consumed for service provision.
Financial process indicators
Evaluates whether an organization has enough cash and cash equivalents to meet its short term obligations.
Liquidity indicator. Current Assets/Current Liabilities
Cash and Cash Equivalents and other assets that can be converted to cash within one year.
Financial obligations that are expected to be paid within one year. Includes wages and monies owed to suppliers.
Difference between assets and liabilities
Change in Net Assets (Net Position)
Difference between total revenues and total expenditures for the year in an organization.
Long-Term (or noncurrent) assets
Fund Equity (balance)
Organizations track individual funds separately.
Fund operating surplus (or deficit)
When a funds assets exceed its liabilities (surplus) or when a fund liabilities exceed its assets (deficit)
Fiscal and accounting entity that reports its own assets and liabilities.
Comparison of debt with total assets (Total debt/Total Assets) Larger the Ratio the lower the debt capacity of the organization
Financial Results Indicators
Total Asset Turnover
Calculates the revenue per dollar of assets. Total Revenues/Total Assets. Indicator of asset allocation efficiency. A higher value indicates a more efficient asset allocation as measured by higher revenue earning potential. Ex a value of 1.2 shows that for every dollar in assets brings $1.2 in revenue.
Fixed Asset Turnover
Total Revenues/Total Fixed Assets. Revenue per dollar of assets invested in long term assets such as equipment and properties.
Return on Assets
Change in Net Assets/Total Assets. Evaluates earnings (the change in net assets) per dollar of assets. Value of .50 indicates that 50 cents of earnings or profit are made for each dollar spent on assets.
Return on Net Assets (Net Position)
Change in Net Assets/Net Assets. Assesses the change in net assets, or profitability, per dollar of net assets.
Four criteria in the selection of indicators for monitoring
- Meet monitoring objective.
- Address specific monitoring needs.
- Meet the requirement of monitoring frequency.
- Costs associated with data collection should be acceptable
Comprehensive Annual Financial Report (CAFR)
Information on assets, liabilities, fund finances, and cash flows can be found in the CAFR. Should also present demographic information.
Three steps in detecting unacceptable performance
- 1. Examining Indicators
- 2. Detecting the performance trend
- 3. Developing a complete picture of performance
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