Author: Peat, Marwick, Mitchell

Publication Year: 1980

Media Type: Report

Summary:

The users of the financial statements of a performing arts organization - administrators, board members and others -are concerned about its financial health and activities. The financial statements of performing arts organizations sometimes are prepared in accordance with the principles of fund accounting. Where these principles are followed, the amount of detail as well as the format makes analysis of these statements difficult for some users. In those cases where a fund accounting format is not used, users still often have difficulty in understanding changes in the financial condition of the organization that the financial statements convey.

Abstract:

The users of the financial statements of a performing arts organization - administrators, board members and others -are concerned about its financial health and activities. The financial statements of performing arts organizations sometimes are prepared in accordance with the principles of fund accounting. Where these principles are followed, the amount of detail as well as the format makes analysis of these statements difficult for some users. In those cases where a fund accounting format is not used, users still often have difficulty in understanding changes in the financial condition of the organization that the financial statements convey.

Ratio analysis is an analytical technique that employs summary indicators to facilitate and enhance the user's understanding of the reporting organization's financial statements. Ratio analysis helps users of financial statements formulate answers to fundamental questions about the organization's financial status and performance, namely:

• Is the reporting organization clearly financially healthy, or not, as of the reporting date?
• Is the reporting organization financially better off, or not, at the end than it was at the beginning of the year reported on?
• Did the reporting organization live within its means during the year reported upon?

Assuming that ratio analysis has been used to develop suggested answers to these three questions about what has happened, the next fundamental historical question is:

• Why have the organization's financial ratios behaved in the manner observed?

The complete answer to these questions, of course, is not proved by the ratios described herein. Rather, the ratios provide a first cut answer to these fundamental questions. The results of this analysis should suggest other subsidiary questions that naturally follow from the summary analysis. In part the financial statements reflect the results of policy decisions made earlier by the administration and board. The ratios, therefore, help users of financial reports to understand the results that emanated from these decisions.

CONTENTS
Introduction to ratio analysis.
Assessment of financial condition: Balance sheet ratios.
Evaluation of financial performance: Net operation ratio.
Evaluation of financial performance: Contribution and demand ratios.
Comparisons to other organizations.

Arts & Intersections:

Categories: Financial Management