Amyotrophic lateral sclerosis (ALS), also called “Lou Gehrig’s Disease,” is a progressive degenerative disease that affects nerve cells in the brain and spinal cord. A non-profit organization, the ALS Association, is dedicated to defeating the disease. It raises money and directs research to this end. The Ice Bucket Challenge recently in the news raised over $100 million for such efforts.
There are many other non-profit organizations (see List of Nonprofit Organizations for examples http://charity.lovetoknow.com/List_of_Nonprofit_Organizations) that depend on donations to foster their efforts as well.
Financial ratios may help contributors better assess the financial health of a non-profit organization or how efficiently/effectively it uses donations. The challenge is that the financial analysis applicable to for-profit organizations is only partially useful for nonprofit organizations. For example, nonprofit organizations generally do not have profit margins; revenue streams are different; and, equity is much different.
Propose and name a new ratio (i.e., one that is not in the text) that could be used in the financial analysis of a nonprofit organization. Identify the non-profit organization; explain what specific financial information would be needed; how the ratio would be calculated; and, what the ratio would communicate about the financial health of the organization.
Discuss what you see as your proposed ratio’s pros and cons.
