Financial Trends Analysis Glossary (2024)

Business model:

The expression of how an organization makes and spends money in service of its mission.

Profitability:

An indicator of an organization's business model performance by showing whether it realized a surplus or experienced a deficit in a given year. Surpluses are essential to nonprofit financial health.

Unrestricted surplus (deficit) after depreciation:

A measure of profitability. In this report, this metric is calculated from the balance sheet due to the use of IRS Form 990 data. It is important for organizations to aim for surpluses that exceed their expenses including depreciation. Depreciation is a non-cash expense, which, for property owners, can be sizable. Unrestricted surplus (deficit) may not always reflect the amount available for operations if non-operating items, such as capital campaign contributions released from restriction and gains/losses on investments, are present.

Calculation: Balance Sheet, Line 27B (Unrestricted net assets, end of year) - Line 27A (Unrestricted net assets, beginning of year)

Unrestricted surplus (deficit) before depreciation:

Same as above but calculated before annual depreciation expense. It may be helpful to look at profitability without the effects of depreciation, a non-cash expense that serves as a proxy for future replacement needs on fixed assets.

Calculation: Balance Sheet, Line 27B (Unrestricted net assets, end of year) - Line 27A (Unrestricted net assets, beginning of year) + Statement of Functional Expenses, Line 22A (Depreciation)

Total revenue (restricted and unrestricted):

The sum of all income sources received within a given year. The Form 990 does not distinguish between unrestricted and restricted revenues; therefore it is possible that a portion of revenues reported here are restricted for future use and unavailable for use in the year received.

Statement of Revenue, Line 12A (Total revenue)

Program services revenue:

Funds received by an organization in exchange for providing the services for which it received tax-exemption (e.g., tuition, fees, or admissions). Government revenue is considered program service revenue if the government, rather than the public, is the primary beneficiary of the services. Most government contracts should be booked under government grants since the beneficiary is the general public. However, it is not uncommon for nonprofits to book contracts as program services revenue. Medicare and Medicaid payments should be considered program services revenue since the insurance coverage is with the individual who contracts with the nonprofit organization for service. May also include earned revenue from sales of inventory for hospitals, colleges and universities only and revenue from certain unrelated trade and business activities.

Statement of Revenue, Line 2g

Membership dues:

The portion of a charge for organizational membership that is not given in exchange for any goods or services. For example, a theater provides a donor with two tickets worth $50 for a $75 membership. Only $25 would be recognized in this line item.

Statement of Revenue, Line 1b

Investment income:

Interest and dividend income from equity, debt, and bond securities. Excludes realized and unrealized gains and losses on investments.

Calculation: Statement of Revenue, Line 3A (Investment income) + Line 4A (Income from investment of tax-exempt bond proceeds)

Government grants:

Government revenue, whether from local, state, federal or foreign government units, is considered a contributed grant if the primary beneficiary of services provided is the public, rather than the government unit itself. For the purposes of this report, due to the use of IRS Form 990 data, most government contracts should be booked under government grants since the beneficiary is the general public. However, it is not uncommon for nonprofits to book contracts as program services revenue.

Statement of Revenue, Line 1e

All other grants and contributions:

For the purposes of this report, includes: support from federated campaigns (such as United Way), foundations, individuals, corporations, fundraising events (net of expenses) and other related organizations. May include restricted funds received for future years, and therefore not accurately represent revenue available for use in the given year. May also include funds not intended for operations, e.g., capital campaign dollars for a facility project or an endowment.

Calculation: Statement of Revenue, Sum of Lines 1a (Federated campaigns), 1c (Fundraising events), 1d (Related organizations), 1f (All other contributions), 8c (Net income from fundraising events)

Other revenue:

For the purposes of this report, this category includes rental income, royalties, gaming, gains/losses on sales of assets and investments, sales of inventory items, and miscellaneous revenue.

Calculation: Statement of Revenue, Sum of Lines 5A (Royalties), 6d (Net gain or loss, Gross Rents), 7d (Net gain or loss, sales of other assets), 9c (Net income or (loss) from gaming), 10c (Net income or (loss) from sales of inventory), 11e (Total miscellaneous revenue)

Total expenses before depreciation:

The annual costs of running operations and programming, excluding depreciation. Depreciation is an accounting estimate of the general wear and tear of land, buildings, equipment or other fixed assets over a defined useful life. Though it is a non-cash expense, it can help nonprofits plan for the maintenance and replacement of depreciated fixed assets.

Calculation: Statement of Functional Expenses, Line 25A (Total functional expenses) - Line 22A (Depreciation)

Personnel:

Personnel expenses include salaries, payroll taxes and benefits. This category generally excludes costs associated with contract personnel, but depends on how the nonprofit filled out the Form 990.

Calculation: Statement of Functional Expenses, Sum of Lines 5A (Compensation of current), 6A (Compensation not included), 7A (Other salaries and wages), 8A (Pension plan contributions), 9A (Other employee benefits), 10A (Payroll taxes)

Professional fees:

All contract professionals, such as teachers, artists, musicians, lawyers, accountants, architects, who do not have their taxes withheld by the organization nor do they receive benefits.

Calculation: Statement of Functional Expenses, Sum of Lines 11a (Management), 11b (Legal), 11c (Accounting), 11d (Lobbying), 11e (Professional fundraising), 11f (Investment mgmt.), 11g (Other)

Occupancy:

All costs relating to the rent, utilities, insurance and maintenance of square footage occupied. Does not include periodic capital improvements to property (leased or owned), which would be capitalized on the balance sheet as assets.

Statement of Functional Expenses, Line 16A

Interest:

The interest portion of loan payments, which are reflected in an organization's income statement or budget - does not include payments of loan principal which are captured on the balance sheet.

Statement of Functional Expenses, Line 20A

Pass-through:

Funds either spent on behalf of, or passed through to, a secondary recipient.

Statement of Functional Expenses, Lines 1A-4A

All other expenses:

For the purposes of this report, this expense category includes all expense line items not reflected in Personnel, Professional fees, Occupancy, Interest, and Pass-through expense categories.

Calculation: Statement of Functional Expenses, Sum of Lines 12A (Advertising), 13A (Office expenses), 14A (Information technology), 15A (Royalties), 17A (Travel), 18A (Payments of travel or entertainment), 19A (Conferences, conventions), 21A (Payments to affiliates), 23A (Insurance), 24a, b, c, d, e, f (Other expenses)

Full Costs:

Comprised of total expenses in addition to resource needs reflected on an organization's balance sheet and necessary for longer-term financial health. Relevant amounts and components of full cost vary by individual organization and can include: total expenses - including unfunded expenses, working capital, reserves, debt principal repayments, fixed asset additions, and change capital. See Full Report for a detailed estimated analysis.

Capital structure:

The nature (restricted vs. unrestricted, fixed vs. liquid), composition (relative proportion across categories), and magnitude (amounts) of the assets, liabilities, and net assets comprising the balance sheet. A well-balanced capital structure enables organizations to take risks, innovate, and pursue new opportunities when it is appropriate and sufficiently sized to cover the organization's full cost needs.

Liquidity:

Refers to the amount of cash and cash-like resources an organization has available to manage its working capital needs and to respond to risks or opportunities.

Months of cash:

Measures how long an organization can operate at average monthly expense levels solely using existing cash. Some cash may be restricted by donors for future years or purposes and therefore limited in availability. A portion of temporarily restricted cash, however, may be available in the following fiscal year to deliver programs. Only a conversation with management can clarify what is available and when. Months of cash is calculated as end of year cash balance divided by monthly expenses (excluding depreciation).

Calculation: [Balance Sheet, Line 1B (Cash) + Line 2B (Savings)] / [(Statement of Functional Expenses, Line 25A (Total functional expenses) - Line 22A (Depreciation)) / 12 (months)]

Months of estimated liquid unrestricted net assets:

A measure of financial flexibility and risk tolerance, liquid unrestricted net assets (LUNA) represents the portion of unrestricted net assets exclusive of any ownership of fixed assets. LUNA includes a combination of cash, investments, receivables, and prepaid expenses less all liabilities not related to fixed assets. As one measure of liquidity, it represents flexible funds available to support operations. Months of estimated LUNA is calculated as LUNA divided by monthly expenses (excluding depreciation). This number is estimated due to assumptions made about the nature of debt reported in the Form 990.

Calculation*: [Balance Sheet, Line 27B (Unrestricted net assets) - Line 10c (Land, buildings, and equipment) - Line 23B (Secured mortgages) - Line 20B (Tax-exempt bond)] / [(Statement of Functional Expenses, Line 25A (Total functional expenses) - Line 22A (Depreciation)) / 12 (months)]
*When net equity in land, buildings, and equipment is negative, it is excluded from the calculation of months of unrestricted liquid net assets.