Breaking Down Non-Profit Financials

With Easter making its way out for 2009, many people are thinking about giving to those less fortunate. But when you decide to contribute to a non-profit, do you pour over their financials the same way you would a for-profit investment?

If not, it’s probably a good idea to start considering the change. After all, wouldn’t it be good to know exactly what your favorite charity has in mind for all of that money? While charities make their financials available for contributors (normally), their format is very different from the GAAP financial statements you’d expect from any SEC filer.

I wrote an article for Investopedia a little while back on decipering governmental and non-profit financial statements… You can read it here. Here’s an excerpt:

Just like governmental organizations, nonprofits aren’t in it for the money. They too use fund accounting and offer up financial statements for public consumption each year.

Nonprofits straddle the fence somewhere between the private sector and government. Because they are not out to make a profit, fund accounting provides the best accounting system for most nonprofit organizations. The same fundamental ideas apply for nonprofit accounting as governmental accounting – the goal is to have annual expenditures end up very close to annual revenues.

Nonprofits don’t publish CAFRs – instead, their reports will typically just be called a “Report of Consolidated Financial Statements”. Either way, the statements for both governmental and nonprofit organizations are very similar. Nonprofit financial statements often consist of…

For a breakdown on what those reports are actually called and where you can find them, read the article at Investopedia.

How to Analyze the 3 Basic Financial Statements

Reading financial statements can be tricky business if you’re just getting started in the investing game. But if you invest based on company fundamentals, knowing how to navigate an income statement, balance sheet, or statement of cash flows is absolutely essential.

That’s why I wrote a series on getting started with financial statements for TheStreet.com a while back… here they are:

Getting Started: The Income Statement -

First of all, the question should probably be “What is income?” For a company, as with an individual, net income is “take-home” pay. That means it’s the money that a company records as profit at the end of “the day.” The income statement is the financial statement that’s used to get to that oh-so-important number.

Getting Started: The Balance Sheet -

Simply put, the balance sheet is one of the most important financial documents you can use to evaluate a company’s fundamentals (“Getting Started: Fundamental Analysis”). As one of the principal corporate financial statements, the balance sheet’s job is to essentially tell investors where a company stands financially.

The balance sheet consists of two main sections: first, assets (usually presented on the left) and second, liabilities and shareholders’ equity (usually presented on the right).

Getting Started: The Statement of Cash Flows -

Cash is the lifeblood of most companies, and many a company has crumbled from a lack of it. Why is it then that the statement of cash flows is probably the least understood of the big three financial statements? It’s time to get in the know about cash flow.