Playbook: crunching the numbers think finances are in good shape? Take a look at the different ways you can interpret your budget and financial statements.

Budgets, financial statements, numbers ... they can drive some people crazy. However, there are different ways to break down numbers to better see what they truly mean. Using ratios, performance metrics and benchmarks, a better understanding of numbers is not far away. Here are a few examples of how to interpret the numbers.

Liquidity

Can your organization pay the bills? Sometimes your financial statements make the organization look very healthy, but it still cannot meet all its obligations. Even if your organization has more assets than liabilities, if the assets are building, equipment or other non-liquid assets, they really do not help in paying the bills. Assume that your organization has operating bills totaling $500,000, and $1,000,000 of your $1,400,000 of assets is in your build-ing, then your organization may have issues with their creditors, and thus is not very liquid.

Operating Efficiency

After looking at your group's year-end financial statements, how can you tell if the organization is using assets to maximize revenue? Although averages vary, some experts say that annual revenue should be about 130 percent of the total liquid assets. So for a group with $10 million in liquid assets, it should have close to $13 million in gross revenue. Having less than the benchmarked revenue could mean that the organization needs to start investing into some revenue-producing products and services.

Collections

When looking at whether or not the agency is doing a good job at collecting the money owed to it, divide the total sales by the average accounts receivable. For example, say the agency's total sales increased during the past three years from $5 million to $6 million to $8 million and the accounts receivables also increased from $700,000 to $750,000 to $900,000.

It's great that the company is increasing revenue, but is it doing a good job at collections? The answer is actually no. The receivable turnover rate increasing from a year two rate of 8.27 ($6,000,000/($750,000+$700,000)/2) to a year 3 rate of 9.70 ($8,000,000/ ($750,000+$900,000)/2). That increase in the rate means that collections are coming in slower.

So even though the agency is selling more, they are not doing as good of a job getting the cash in the door, which can be very important.

Breaking Down Costs

It may be difficult to justify spending $365,000 on a new playground project, but by looking at the "per unit" cost, the amount may not seem that much. If it is estimated that on average, you expect 100 children to play on the playground each day, and if you think the playground is going to last 10 years, then you are really spending only $1 per child per day to have that playground. It seems like a small amount for many hours of enjoyment the children will have.

Investment Return

Use benchmarks to compare investment returns. Receiving a seven percent return on a portfolio may sound good, but not if the average return in the market is 10 percent. There are several ways to benchmark investments, like comparing the organization's equities to the S&P 500 or comparing a fixed income portfolio to a bond fund.

At the end of the day, numbers do not hold much value if you cannot interpret them. Using benchmarks, ratios and other metrics help to analyze the meaning behind the numbers.

Rob Batarla is NRPA's chief financial officer. He has more than ten years of accounting and finance experience, holds an MBA, and is a certified public accountant. He can be reached at [phone] or by email at [e-mail].

FUN FACT

Speaking of metrics, on an average
day, how many daily hits does the
NRPA homepage get?

a) 270      b) 6,300
c) 15,970   d) 32,510

Answer: (b) The NRPA homepage gets
about 6,300 hits every day! Have you
logged on to www.nrpa.org today?