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Workplace Skills

1. Suppose you are a new board member for an emerging not-for-profit organization hoping to attract new donors. Contributors want to know how efficiently not-for-profit organizations use their donations. Unfortunately, your fellow board members see little value in financial reporting and analysis and believe the good works of the organization speak for themselves. Prepare a fact sheet convincing the board of the need for effective financial reporting with arguments about why it helps the organization's fundraising goals.

2. Obtain a recent annual report for a company of your choice. (Hints: The Wall Street Journal has a free annual reports service, and virtually all major companies post their annual reports on their websites.) Look over the firm's financial statements and see whether they match the information in this chapter. Read the auditor's opinion (usually at the end of the report) and evaluate what you think are the most important conclusions of the auditors.

3. Obtain a recent annual report for a company of your choice (see the hints just above in exercise 4) and try your hand at computing financial ratios. Compute the current ratio, debt to owners' equity ratio, and basic earnings per share ratio. Then request an annual report from one of the firm's major competitors and compute the same ratios for that company. What did you find?

4. Go online and check the capitalization required to open a franchise of your choice, like Subway or McDonald's. Does the franchisor offer financial assistance to prospective franchisees? Evaluate the cost of the franchise versus its business potential using the risk/return trade-off.

5. If you are considering investing in the bond market, how could information provided by Standard & poor's, Moody's Investors Service, and Fitch Ratings help you?

6. Explain the role of the World Bank and the International Monetary Fund in providing loans to countries. Is it important for U.S. citizens to lend money to people in other countries through such organizations? Why or why not?

Solution Preview

1.
Benefits of Effective Financial Reporting
• Auditor's Report
• The auditor's report is created by the independent external auditor to provide a formal opinion or disclaimer to the general public about the financial state of the not-for-profit.
• Considered as an essential tool when an organization reports financial information.
• Statement of Financial Position
• The Current Assets are listed, which includes the Cash and cash equivalents, Accounts receivable, Grants receivable, Pledges receivable, Charitable trust receivable and additional items.
• Currents assets will give donors insight to cash on hand and funds expected from grants, pledges and charitable trust.
• Other assets provide information on the organizations assets, which include the property.
• Current Liabilities details bills and fees that the organization will pay such as: Accounts payable and current portion of notes payable.
• Long term Liabilities are debts that the organization will have to pay for 3 years or more.
• Finally, the total liabilities and Net Assets are listed.
• The current state of the organization's financial state.
• Statement of Activities
• Details the Revenue and Support for the organization
• Revenue from the contributions, programs, membership dues, grants and gift shop.
• Provides an easy view into the specific revenue streams.
• Expenses examine the overall areas for program and supporting services.
• Statement of Functional Expenses
• Details the Program and Supporting services expenses by each line and by the various departments of the organization.
• Each expense is detailed, which allows donors to view how well the organization is spending funds and managing the busy.
• Statement of Cash Flows
• Details the Cash Flows from Operating, Investing and Financing Activities.
• Operating details the changes in assets and liabilities, increase in charitable trust receivable.
• Investing details the purchases ...

Solution Summary

The workplace skills emerging for not-for-profit organizations are determined.

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