The Financial Perspective (Part 2)

Working capital is also indicated as key financial measure of not-for-profits by Charity Navigator (2005), the Theatre Communications Group (2003) and Kushner and Pollack (2004). Working capital is the net liquid assets of an organization divided by its total expenses for the most recent fiscal year. Working capital indicates an organizations ability to sustain programs and operations during downturns or to take advantage of opportunities in good times. The median working capital ratio for all not-for-profits according to Charity Navigator is 0.7 years (8.4 months). In the Theatre Communication Group study (2003) working capital had reached a low of -.10 in 2003; the fifth consecutive year organizations reported a negative working capital ratio. As cited by the study, a working capital ratio of .25 (3 months) is considered adequate to handle most cash flow fluctuations. Kushner and Pollack (2005) also indicate a significant decrease in working capital among the performing arts presenters it studied. Median working capital ratios decreased from .264 (2001) to .098 (2002); a decrease of 63.1 %. The study also indicates that the current ratio (current assets divided current liabilities) decreased by 32.8%, from 1.98 to 1.33 for the same period. The current ratio indicates current assets available to cover current liabilities; a ratio of 2 to 1 is considered generally acceptable. Table 7 summarizes high level financial measures for performing arts presenters and are an inseparable component of the of an organizations mission to enhance, enrich and improve the quality of life.

Table 7

Objectives and measures for the financial perspective; productivity strategies.

Financial Objective	Performance  Metric	Industry Averages
Sustainable financial operations	Net income ratio Working capital ratio Current ratio	.05 .25 2