Financial Statement Analysis and Budgeting for Nonprofit Healthcare Organizations
Expert-defined terms from the Postgraduate Certificate in Nonprofit Healthcare Organization Accounting course at London School of International Business. Free to read, free to share, paired with a globally recognised certification pathway.
Accrual Basis Financial Statements: #
Accrual Basis Financial Statements:
Financial statements that report revenues and expenses when they are earned or i… #
This basis provides a more accurate picture of a nonprofit healthcare organization's financial position and performance over time.
Balance Sheet: #
Balance Sheet:
A financial statement that presents a nonprofit healthcare organization's assets… #
It provides information about the organization's financial position and solvency.
Budget: #
Budget:
A financial plan that outlines an organization's expected revenue and expenses f… #
A budget helps a nonprofit healthcare organization plan for the future, allocate resources, and monitor financial performance.
Cash Basis Financial Statements: #
Cash Basis Financial Statements:
Financial statements that report revenues and expenses when cash is received or… #
This basis provides a simpler view of a nonprofit healthcare organization's financial position and performance, but may not accurately reflect the organization's long-term financial health.
Cost of Goods Sold (COGS): #
Cost of Goods Sold (COGS):
The direct costs associated with producing or delivering the goods or services t… #
COGS includes expenses such as labor, materials, and overhead.
Current Ratio: #
Current Ratio:
A liquidity ratio that measures a nonprofit healthcare organization's ability to… #
It is calculated by dividing current assets by current liabilities.
Debt Service Coverage Ratio (DSCR): #
Debt Service Coverage Ratio (DSCR):
A solvency ratio that measures a nonprofit healthcare organization's ability to… #
It is calculated by dividing net operating income by total debt service.
Depreciation: #
Depreciation:
The systematic allocation of the cost of a long #
lived asset, such as property, plant, or equipment, over its useful life. Depreciation is a non-cash expense that reduces an organization's net income.
Financial Position: #
Financial Position:
The state of a nonprofit healthcare organization's financial resources, includin… #
Financial position is typically assessed through a balance sheet.
Financial Ratios: #
Financial Ratios:
Quantitative measures used to evaluate a nonprofit healthcare organization's fin… #
Financial ratios compare various aspects of an organization's financial statements, such as liquidity, solvency, and efficiency.
Financial Statement Analysis: #
Financial Statement Analysis:
The process of examining and interpreting a nonprofit healthcare organization's… #
Financial statement analysis involves comparing financial information to budgets, prior periods, and industry benchmarks.
Fundraising Expenses: #
Fundraising Expenses:
Expenses incurred in the process of soliciting and securing donations and grants #
Fundraising expenses include costs such as salaries, consultants, events, and materials.
Functional Expenses: #
Functional Expenses:
Expenses that can be classified according to the programs and services they supp… #
Functional expenses are reported on a nonprofit healthcare organization's statement of activities.
General and Administrative Expenses (G&A): #
General and Administrative Expenses (G&A):
Expenses that support the overall operations of a nonprofit healthcare organizat… #
G&A expenses include costs such as salaries, rent, and utilities.
Government Grants: #
Government Grants:
Financial assistance provided by government agencies to support specific program… #
Government grants are typically subject to certain conditions and restrictions.
Indirect Costs: #
Indirect Costs:
Expenses that cannot be directly attributed to a specific program or service, bu… #
Indirect costs include items such as rent, utilities, and administrative salaries.
Invested Capital: #
Invested Capital:
The total amount of long #
term capital invested in a nonprofit healthcare organization, including equity, debt, and other long-term liabilities.
Liquidity: #
Liquidity:
The ability of a nonprofit healthcare organization to meet its short #
term obligations as they come due. Liquidity is typically measured through ratios such as the current ratio and quick ratio.
Long #
Term Debt:
Debt that is due after one year or more. Long #
term debt is reported on a nonprofit healthcare organization's balance sheet and is a key factor in assessing its solvency.
Net Assets: #
Net Assets:
The difference between a nonprofit healthcare organization's total assets and to… #
Net assets represent the organization's residual interest in its assets and are reported on its balance sheet.
Operating Margin: #
Operating Margin:
A profitability ratio that measures a nonprofit healthcare organization's operat… #
It is calculated by dividing operating income by total revenue.
Program Expenses: #
Program Expenses:
Expenses that are directly attributed to the programs and services offered by a… #
Program expenses include costs such as salaries, supplies, and equipment.
Restricted Net Assets: #
Restricted Net Assets:
Net assets that are subject to donor #
imposed restrictions on their use. Restricted net assets are reported on a nonprofit healthcare organization's balance sheet and are typically designated for specific programs or purposes.
Revenue: #
Revenue:
Statement of Activities: #
Statement of Activities:
A financial statement that reports a nonprofit healthcare organization's revenue… #
A financial statement that reports a nonprofit healthcare organization's revenues, expenses, and changes in net assets for a specific period, typically a fiscal year.
Statement of Cash Flows: #
Statement of Cash Flows:
A financial statement that reports a nonprofit healthcare organization's cash in… #
A financial statement that reports a nonprofit healthcare organization's cash inflows and outflows from operating, investing, and financing activities for a specific period, typically a fiscal year.
Solvency: #
Solvency:
The ability of a nonprofit healthcare organization to meet its long #
term obligations and remain financially viable. Solvency is typically measured through ratios such as the debt-to-equity ratio and debt service coverage ratio.
Unrestricted Net Assets: #
Unrestricted Net Assets:
Net assets that are not subject to donor #
imposed restrictions on their use. Unrestricted net assets are available for a nonprofit healthcare organization to use at its discretion.
Variance Analysis: #
Variance Analysis:
The process of comparing actual financial results to budgeted amounts to identif… #
Variance analysis can help a nonprofit healthcare organization identify areas for improvement and make informed decisions about resource allocation.