               Financial Statement Ratios ...

Ratios are an effective way to compare organizations of different size and are often used in evaluating financial performance.

Common Size Ratios

One set of ratios are called common size ratios and can be used to express certain elements of a financial statement over a common base. For example, tax revenue can be divided by total general revenue to determine what percent of total revenue comes from taxes. The tables related to the statement of net assets and the statement of activities have several common size ratios that can be accessed by choosing the common size option under display mode. The following common size ratios can be accessed under the following tables:

Statement of Net assets: Net assets by Category:
 The three components of net assets are divided by total net assets. This information can be used to determine the percent of net assets that represent capital assets, net of related debt, restricted net assets and unrestricted net assets.

Statement of Net Assets: Assets, Liabilities and Net Assets:
 Assets, liabilities and net assets are divided by total assets. This common ratio is very useful in determining how much a government depends on debt to finance its assets.

Statement of Activities: Changes in Net Assets by Category:
 Expense, program revenues, general revenues, and change in net assets are divided by expenses. This table can be used to determine how a government finances its activities. It is used to determine if the funding for its program comes from charges for services, grants or general revenues

Statement of Activities: Expenses and Program Revenues:
 The common size ratio table divides expenses and net expenses for a particular function by related total expenses for governmental activities, business-type activities, and component units. For example, the amount of expenses and net expenses for public safety is divided by total expenses for governmental activities. The table can be used to determine how much of the total expenses for a category goes to a certain function.

Statement of Activities: General Revenues:
 Revenues from taxes, unrestricted grants and contracts, investment income, payments from component units or primary government, and miscellaneous revenues are divided by general revenues. The table reports how much of general revenues come from the various sources of general revenue.

Other Ratios

Other ratios are often used to express relationship between two elements of the same statement or for two elements from different statements. These ratios are often helpful in understanding certain relationships related to financial performance. Following is a list of other ratios:

Change in Net Assets / Expenses
 This ratio is relative indicator on how government financial position changed for the year. A positive change indicates that the financial position improved. Because it is expressed in terms of total expenses, it indicates the percent change in financial position as it relates to total expenses for that activity.

Net Assets / Expenses
 This ratio indicates the relative financial position of a government as it relates to total expenses for an activity. Because Net Assets can be roughly thought of as assets not claimed by creditors " this ratio provides an indication of the net resources available to the locality to provide services in the future. A higher number would indicate a stronger financial position.

Unrestricted Net Assets / Expenses
 This ratio indicates the amount of unrestricted net resources of a government as it relates to expenses for an activity. Because capital assets net of related debt and restricted net assets are not included, this ratio represents somewhat the level of reserves a government may draw on to meet future needs.

Total Liabilities / Total Assets
 This ratio indicates the amount of leverage a government uses to finance its assets. The higher the ratio, the more the government depends on debt to finance its assets.

Total Liabilities / Expenses
 This ratio indicates the amount of leverage a government uses as it relates to total expenses for an activity. The ratio expresses debt as a percentage of annual expenses. The higher the ratio, the more the government relies on debt relative to its annual expenses.

Interest Coverage Ratio
 This ratio is computed by dividing change in net assets plus interest expense by interest expense. It indicates the ability of the government to meet its debt borrowing costs. A higher number would indicate a better ability to meet these costs.

Home Page           Background on GASB 34           School Assets in Virginia                 Site Feedback Funding for this project was provided by a grant from the Alfred P. Sloan Foundation.