Ok faithful readers, if you've been following this series so far, prepare to get down in the weeds. If you're not a finance person, don't be too turned off, I needed to get a little help getting to the meaning of this stuff myself (we have a wonderful CFO here, Heidi Robey--thank you Heidi!).
One way you can sort the data in the 990 Key Ratios tool is by something called "Investment Asset Balance." I interpreted this to be a proxy of how much an association had in reserves. It's not quite apples and apples. When you compare those with a large investment asset balance against those with a small one, controlled for organization size, you see that those with the smaller asset balance are sitting on a higher percentage of cash and have more tied up in building and other capital. However, the associations with larger investment asset balances also had significantly more net assets.
(Are there any nonfinance geeks still with me? I didn't think so, feel free to blast me when I try to explain the current ratio in one of the questions below.)
As a result, I'm going to call it an apple even if it isn't quite. I'm going to say that organizations with larger investment asset balances are going to be the organizations that over time have had more financial success than organizations with relatively smaller investment asset balances. What are other characteristics that separate the investment haves from the investment have nots? That's today's quiz.
We're looking at the 2009 tax year and associations with between $1million and $10 million in revenue. We're comparing associations with an investment asset balance of less than a quarter-million dollars with those having more than half a million.
1. Those with larger investment asset balances generate more revenue per employee. How much more? That's the question (I'm using median to discount outliers, but mean would have a similar result)
ANSWER: B, $59,591. It stands to reason that financially successful organizations would make more per employee, but that is a huge number. If you have 20 employees, that's a million dollar difference in revenue. A look at averages in each group really shows the difference: those with lower investments average $2.6 million in revenue with 57 employees; the larger investment group averages $3.3 million with 51 employees.
2. They also pay more. When you compare total compensation costs per employee, how much more do those with large investment assets spend?
ANSWER: C, $17,581. You might think this one would be closer, because to accumulate revenue in excess of expenses (enabling a large investment portfolio) requires efficiency, and as we've already demonstrated in these quizzes, compensation is a hefty percent of the expense of running an association. Clearly they're not squeezing efficiency out of their compensation lines.
3. Who relies more on membership dues as a percent of revenue?
ANSWER: Of course it's the low investment group. Seems logical that the more financially successful organization is going to have more diversity in its income streams. And it's pretty substantial difference: dues are 36 percent of revenue at associations with larger investment balances and 46 percent at those with smaller balances.
4. This question involves the current ratio, a measurement of financial health. In poor man's terms, it essentially compares current net assets to current net liabilities. So, if it's less than one, it means you're going to have a tough time paying your bills and it's past time to start talking to a bankruptcy lawyer. If you're an association in double digits--if any exist--you're bilking your members and need to invest some of that cash in new initiatives. So the quiz question is this: what number does the current ratio of associations with relatively large investment asset balances start with? Two pieces of information to help you make an educated guess: the current ratio of those with little investment asset balances is 2.8; the ratio for all associations in the revenue range we're looking at is 3.5.
ANSWER: Congratulations to our one quiz taker who guessed 5.5. The answer is 5.4 or almost double. However, if I worked for an organization looking at 2.8, I'm not particularly worried. Don't get me wrong, something in the 5s would be nice, but I wouldn't be worried for my job everytime the stock market slumped.
5. If you're still with me after the complexity of that question, God bless you! The final question is which of the following expense categories do you think are significantly different when you compare the two groups of associations we've been talking about in this post? Choose any/all categories that cost one group more as a percent of total expense than the other.
Accounting, Professional Fundraising, Technology, Advertising & Promotion, Travel.
ANSWER: A trick question I put in because it fascinates me. The answer is none of them. Oh, they may differ by 2 or 3 tenths of a percent, but for the most part, the expenses outlined on the 990, other than compensation, match up pretty uniformly. (The difference is made up in the not particularly enlightening expense line labeled "all other expenses.")
That's it. No fantabulous prizes today--no one seems to be guessing answers anyway. It's too bad, I had a lovely set of coasters with our old logo on them. I think they're valuable as classics. I'm sure you're reading anyway, or at least you did before this quiz. Keep tuning back--I've already started the big DC vs. Chicago quiz that will run Friday.
POSTSCRIPT: Lauren, I love that you put yourself out there and made some guesses. You better believe I'm sending you some coasters! (Hey everyone else, see what you're missing out on by not guessing...)