Using Ratio Analysis to Manage Not-for-Profit Organizations

credit: Flickr / Nomadic Lass

Investors, creditors, and analysts often use ratios to evaluate commercial enterprises. Ratio analysis can be used to manage nonprofit organizations as well.

Nonprofit managers and governing boards may find it challenging to plan for the organization's financial future because they rely on contributions and the lack of predictability of demand for their services.

However, nonprofits can maintain their financial sustainability by monitoring financial ratios. In fact, ratio analysis helps improve the effectiveness of management and determine if nonprofits have adequate resources to support their mission, values, goals, and efforts.

It is advisable that nonprofit managements should consider its needs and choose a set of ratios to measure that address its concerns. But ratios are not a goal in themselves and care should be taken in their interpretation.

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