User Generated

Evpuznevr

BUS 330A

## Description

Examine the financial statements for Compassion International (Compassion Intl. Annual Report 2016) for the years ending June 30 2016 and 2015 and calculate the following financial statement ratios: (1) cash reserve ratio, (2) return ratio, (3) net operating ratio, (4) debt ratio, and the (5) program expense ratio.

Then write a paper commenting on the change from one year to the next for each ratio. Are the ratios better, the same or worse? What conclusions can you draw from each ratio? Why? What conclusions can you draw from the change in each ratio from one year to the next?

### Unformatted Attachment Preview

Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Attached.

1

Financial Statements for Compassion International

Student Name
Institution
Course Name
Instructor Name
Due Date

2
Financial Statements for Compassion International
Based on the consolidated financial statements of Compassion International for the years
ended June 30, 2016 and 2015, the below are calculated financial ratios:

1. Cash Reserve Ratio
Formula: Cash & Cash Equivalents / Total Expenses
2016: \$95,061,822 / \$787,255,021 = 0.121 or 12.1%
2015: \$80,259,524 / \$776,503,721 = 0.103 or 10.3%

This ratio indicates Compassion had cash reserves to cover about 12.1% and 10.3% of annual
expenses in 2016 and 2015 respectively.

2. Return Ratio
Formula: Change in Net Assets / Total Net Assets (beginning of year)
2016: \$15,988,392 / \$197,072,233 = 0.081 or 8.1%
2015: (\$10,120,227) / \$207,192,460 = (0.049) or (4.9%)

Compassion's total net assets increased by 8.1% in 2016 but decreased by 4.9% in 2015.

3. Net Operating Ratio
Formula: (Total Revenue - Total Expenses) / Total Revenue
2016: (\$803,243,413 - \$787,255,021) / \$803,243,413 = 0.020 or 2.0%
2015: (\$766,383,494 - \$776,503,721) / \$766,383,494 = (0.013) or (1.3%)

3

Compassion had an operating surplus of 2.0% of revenue in 2016 but an operating deficit of
1.3% of revenue in 2015.

4. Debt Ratio
Formula: Total Liabilities / Total Assets
2016: \$88,629,763 / \$301,690,388 = 0.294 or 29.4%
2015: \$90,400,033 / \$287,472,266 = 0.314 or 31.4%

About 29-31% of Compassion's assets are financed by debt.

5. Program Expense Ratio
Formula: Program Services Expenses / Total Expenses
2016: \$648,799,131 / \$787,255,021 = 0.824 or 82.4%
2015: \$635,139,116 / \$776,503,721 = 0.818 or 81.8%
Compassion spent about 82% of its total expenses on program services in both years.
This is a high program expense ratio, indicating most expenses go towards its charitable mission.

Cash Reserve Ratio:
The cash reserve ratio improved from 10.3% in 2015 to 12.1% in 2016. This means that
Compassion International improved its liquidity position and possessed more liquidity or cash
assets available to meet its annual obligation in 2016 than in 2015. A higher cash reserve ratio is
deemed better as it gives the enterprise an adequate money balance in case of any contingencies

4
or instances where the sale revenue might be low (Hosaka, 2019). Compassion International has
enhanced its solvency and has a stronger position to meet its short-term liabilities in 2016 than
the previous year, primarily due to a rise in the cash reserve ratio.
Return Ratio
The return ratio showed a significant improvement from -4.9% in 2015 to 8.1% in 2016.
This means that net assets of Compassion International increased to 8.1% in 2016, after having
decreased by 4.9% in 2015. A positive return ratio means that the total net assets of the
organization has augmented during the year which is a good sign of financial growth and
solvency. This significant transformation in the return r...

### Review

Anonymous
This is great! Exactly what I wanted.

Studypool
4.7
Indeed
4.5
Sitejabber
4.4