The Montana Foundation Fiscal Analysis: Defensive Interventi

The Montana Foundation Fiscal Analysis The “Defensive Interval

The Montana Foundation's fiscal health can be assessed through various financial ratios that provide insights into its liquidity, savings, debt, and income sources. Analyzing these ratios offers a comprehensive view of the organization's stability, operational capability, and potential risks, which are crucial for investors, donors, and stakeholders aiming to evaluate its financial viability.

Introduction

Financial ratios serve as essential tools in assessing the fiscal standing of non-profit organizations such as the Montana Foundation. These ratios enable analysts to interpret financial statements effectively, identify potential strengths and weaknesses, and make informed decisions about investment or support. This paper explores five key ratios—the Defensive Interval, Savings Indicator, Liquid Funds Indicator, Debt Ratio, and Revenue Ratio—to evaluate the financial resilience and stability of the Montana Foundation.

Defensive Interval Analysis

The Defensive Interval Ratio indicates how long an organization can sustain operations with liquid assets if funding were abruptly terminated. For the Montana Foundation, this ratio is calculated as:

(Cash + Securities + Receivables) ÷ Monthly Expenses = ($375,544) ÷ ($49,551) ≈ 7.56 months.

This ratio suggests that the foundation could continue operating for approximately 7.5 months without additional income, which reflects a healthy liquidity position. A ratio of this magnitude typically signals adequate financial cushioning, although longer durations are preferable for greater security.

Savings Indicator

The Savings Indicator measures the organization's ability to increase its net worth by comparing net income to total expenses:

(Revenue – Total Expense) ÷ Total Expense = ($585,536 – $594,619) ÷ $594,619 ≈ -0.015 or -1.5%.

A negative value indicates that the Montana Foundation is not accumulating savings; instead, it is experiencing a slight decline in net assets. This may point to operational deficits or insufficient revenue growth, which could be concerning for long-term sustainability. Nonetheless, the modest percentage suggests that corrective measures might be sufficient to improve this metric.

Liquid Funds Indicator

This ratio assesses how long the foundation can operate solely using its current liquid assets:

(Total Net Assets – Restricted Net Assets – Fixed Assets) ÷ Monthly Expenses = ($292,949 – $230,319 – $0) ÷ $49,551 ≈ 1.26 months.

With approximately one month of liquidity, this indicator highlights a potential vulnerability. Ideally, organizations should maintain liquid funds sufficient for at least six months to buffer against unexpected financial disruptions. The Montana Foundation's current position underscores the need to enhance its liquid reserves for greater operational stability.

Debt Ratio

The Debt Ratio reveals the proportion of total organizational value financed through debt, offering insight into leverage and financial stability:

(Average Total Debt) ÷ (Average Total Assets) = $82,595 ÷ $363,263 ≈ 0.23 or 23%.

This ratio indicates moderate debt levels, implying that approximately 77% of the foundation's assets remain unencumbered. A lower debt ratio is generally favorable, demonstrating that the organization is not overly reliant on borrowed funds, thereby reducing financial risk.

Revenue Ratio Analysis

The distribution of revenue sources reflects the organization’s income diversification, which is vital for financial resilience. The key revenue streams are calculated as:

• Membership dues: ($115,481 ÷ $516,530) ≈ 22%.
• Sponsorships: ($51,225 ÷ $516,530) ≈ 10%.
• Discount product fees: ($76,930 ÷ $516,530) ≈ 15%.
• Conference and training fees: ($86,448 ÷ $516,530) ≈ 17%.
• Project fees: ($25,313 ÷ $516,530) ≈ 5%.

The diversification across multiple revenue streams signifies a strategic strength, reducing dependency on any single source. This multiplicity allows the foundation to withstand fluctuations in individual income sources, contributing to overall financial stability.

Discussion and Conclusion

The analysis of these ratios collectively suggests that the Montana Foundation maintains a relatively stable financial position. The Defensive Interval ratio indicates sufficient liquidity for short-term operations, while the debt ratio demonstrates prudent leverage levels. Conversely, the marginal Savings Indicator highlights a need for improved income growth or cost management to bolster long-term reserves. The Liquid Funds Indicator suggests a vulnerability in liquidity, warranting strategic reserves enhancement. Furthermore, revenue diversification stands out as a significant positive, underpinning income stability.

For potential investors or donors, these insights attest to the foundation’s overall stability, with some areas needing attention. Strengthening savings, increasing liquid reserves, and maintaining diversified revenue sources will enhance financial resilience. Future analyses could incorporate additional ratios such as operating margin and return on assets to develop a more comprehensive fiscal profile.

In conclusion, the Montana Foundation exhibits a solid financial foundation with manageable debt levels and diversified income streams, though efforts to improve liquidity and savings would reinforce its long-term sustainability and appeal to prospective stakeholders.

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