AEA365 | A Tip-a-Day by and for Evaluators

Jan/10

8

Kristen Cici on Financial Defense Intervals

My name is Kristen Cici, and I am the owner of The Advancement Company (http://www.theadvancementcompany.com) and blogger at NonprofitSOS: http://www.nonprofitsos.com. I tend to primarily work with nonprofit organizations and am interested in nonprofit capacity building.

Hot Tip: When most think of evaluation they think of evaluating a program or policy. I like to help people think of the other ways one can use evaluation in their work, such as a performance review. The tip I am going to share comes from my blog post “Want to know how your nonprofit is doing financially?”, and will help you determine an organization’s financial sustainability.

One of the best ways to gain insight into how an organization is doing is look at an organization’s Defensive Interval, which will tell you how long that organization could survive with its cash on hand. To calculate the defensive interval:

(Cash + Marketable Securities)/(Operating Expenses/365 days)

Note: Marketable Securities are liquid investments, things that can be bought or sold with little effect on their price. They typically have maturities of less than a year, so for example a 6 month CD would be considered a marketable security.

Organizations should have at least 90 days worth. For more ways to look at how you organization is doing financially, check out “Want to know how your nonprofit is doing financially?” at NonprofitSOS and calculate the debt ratio, program expense ratio, and working capital ratios for your organization!  http://bit.ly/financialdefenseintervals

This contribution is from the aea365 Daily Tips blog, by and for evaluators, from the American Evaluation Association. Please consider contributing – send a note of interest to aea365@eval.org.

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2 comments

  • Jara Dean-Coffey · January 9, 2010 at 12:24 pm

    These seems important not just for NPO but for consultants as well. Think I will spend a little time evaluating our fiscal defense.

    Reply

  • Author comment by Marcus · January 8, 2010 at 11:27 am

    Kristen,

    You make an excellent point. So often, we get caught up in our actual evaluation work that we fail to show enough attention to the “hard” side of things (i.e., financials). I believe it truly is important to learn these “hard skills” in our education programs, but there, too, it is often overlooked.

    Reply

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