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Measuring an Organization's Financial Health

 

Things to keep in mind when you are evaluating an organization's financial health:

  • A nonprofit's Form 990 is only a snapshot of the organization's finances at a specific time.
  • In general, the organization's total assets should be greater than its total liabilities, or it cannot long survive.
  • The kinds of assets and liabilities an organization has also affect its financial health.
    • For instance, current assets (such as cash, receivables, and securities) should cover current liabilities (such as payables, deferred revenue, and current-year loan and note payments). Otherwise, the organization may face solvency problems.
    • On the other hand, if an organization's cash and equivalents greatly exceed its current liabilities, the organization may not be putting its money to the best use.
  • Financial health is only one criterion for evaluating an organization.
Topics: IRS Form 990 Finance Nonprofits