Hsm 260 Final

Topics: Non-profit organization, Costs, Variable cost Pages: 7 (1679 words) Published: May 31, 2013
HSM 260


February 23,2013

Calculation of Ratios:

Ratio| 2003| 2004|
Current Ratio = Current Asset Current Liability| 0.87| 0.90| Long-Term solvency Ratio = Total Asset / Total Liability| 1.38| 2.06| Contribution Ratio = Largest Revenue Source/ Total Revenue| 0.51| 0.49| Management Expense Ratio = Management Expense/Total Expense| 0.282| 0.226| Program Expense Ratio = Program Expense/Total Expense| 0.66| 0.72| Revenue Expense Ratio = Total Revenue/Total Expense| 0.945| 0.111|

Importance of Ratios:

Current Ratio: Current ratio measures the capability of the company in paying current liability. Higher the current ratio, better the liquidity position of the company. Generally, a current ratio of 2:1 is considered as good. Current Ratio = Total Current Asset / Total Current Liability 2003 Current Ratio=$82,058.00/$93,975.00=0.87

2004 Current Ratio=$302,902.00/$337,033.00=0.898=0.90

Current ratio of XYZ organization is improving from 0.75 in year 2002 to 0.90 in year 2004. It indicates that organization is having good liquidity and capable of paying current liability. XYZ has actually improved its liquidity position.

Long-Term solvency Ratio: Long-term solvency ratio measure a company's ability to meet interest and principal payments on long-term debt and similar obligations. It is the best indicator for assessing long-term solvency risk is a firm’s ability to generate earnings over a period of years. Long-Term solvency Ratio = Total Asset / Total Liability

2003 Long-Term solvency Ratio=$359,863.00/$259,979.00=1.38
2004 Long-Term solvency Ratio= $699,004.00/ $338,937.00=2.06

Long-Term solvency ratio has improved from 1.26 in year 2002 to 2.06 in year 2004. It means that XYZ has improved its ability to meet log-term debt obligations and its long-term solvency is intact.

Contribution Ratio: Contribution ratio is defined as a ratio of largest revenue from a source and total revenue. This ratio tells how much a particular source of revenue contributes to gross margin of the company. It also indicates the dependence of generating profit of a company on a single source. Contribution Ratio = Largest Revenue Source/ Total Revenue

2003 Contribution Ratio= $632,889.00 $1,244,261.00=0.508=0.51 2004 Contribution Ratio=$1,078,837.00/$2,191,243.00=0.49

2003 Contribution ratio of XYZ is 0.51 and in 2004 Contribution ratio is 0.49, which means the single source is contributing over half or close to half of the gross margin. XYZ should decrease the dependence on single source.

Management Expense Ratio: Management expenses include marketing, administrative costs, sales cost. It is not operating expense. High Management expense ratio is not considered good. Any company will try to reduce its management expenses to control cost. Management expense ratio is defined as the management expense as a percentage of total cost. Management Expense Ratio = Management Expense/Total Expense

2003 Management Expense Ratio=$371,101.00/$1,316,681.00=0.2818=0.282 2004 Management Expense Ratio=$445,819.00/$1,972,131.00=0.226

Management Expense ratio has decreased from 29.6% in year 2002 to 22.6% in year 2004. It is a good indication and shown that XYZ has been able to control its management expenses.

Program Expense Ratio: Program Expense ratio is very important for Non-profit organizations. It indicates how much of the total expenses of a non-profit organization is program related. High program expense ratio indicates that non-profit organization is more efficient and it helps the organization in fund raising. Generally Program expense ratio more than 75% is considered as good. Program Expense Ratio = Program Expense/Total Expense

2003Program Expense Ratio=
2004 Program Expense Ratio=



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