1. Financial Condition Analysis Made Easy: Using CAFR information to make financial decisions. IMMI 2010 By Larry D. Burks, MPA

2. Larry D. Burks, MPA2 Financial Condition Analysis The following is a description of the four levels of solvency and the indicator ratios associated with each type of solvency. Adopted from the financial condition analysis of states conducted by Wang, et al. (2006). Also described by Wang in Financial Management in the Public Sector: Tools, Applications, and Cases (2006, pp. 148-171). CAFRs using accrual based accounting are used for calculating solvency ratios.

3. Larry D. Burks, MPA3 STATEMENT OF ACTIVITIES

4. Larry D. Burks, MPA4 STATEMENT OF NET ASSETS Management’s Discussion and Analysis will assist in evaluating financial condition of a government this section may explain noticeable changes or trends indicated by the FCA solvency ratios

5. Larry D. Burks, MPA5 Cash Solvency related to liquidity and effective cash management indicates a government’s ability to generate sufficient resources to pay its current liabilities a larger value in the solvency ratios indicates a larger amount of assets are available to cover liabilities, thus a higher level of cash solvency Cash Ratio and Current Ratio are the two common measures

6. Larry D. Burks, MPA6 Cash Ratio (Cash + Cash Equivalents + Investments) / Current Liabilities measures ratio of cash, cash equivalents and investments to current liabilities indicates ability to cover current liabilities and relates directly to short-term financial conditions can also provide long-term indicators of cash solvency

7. Larry D. Burks, MPA7 STATEMENT OF NET ASSETS

8. Larry D. Burks, MPA8 Current Ratio Current Assets / Current Liabilities measures the ratio of current assets to current liabilities ratio is an indication of a government’s ability to meet short-term financial obligations with current assets

9. Larry D. Burks, MPA9 STATEMENT OF NET ASSETS

10. Larry D. Burks, MPA10 Budget Solvency indicates a government’s ability to generate enough revenues to fund and maintain a certain level of services indicators used to determine budget solvency are highly associated and higher ratios indicate a higher levels of budget solvency measurements include Operating Ratio and Surplus (Deficit) Per Capita

11. Larry D. Burks, MPA11 Operating Ratio Total Revenues/Total Expenditures measures the ratio of total revenues to total expenses operating ratios greater than 1.00 indicates a budget surplus – less than 1.00 a deficit important to the short-term financial condition can provide feedback and opportunities to make corrections to prevent deficits over the long-term

12. Larry D. Burks, MPA12 STATEMENT OF ACTIVITIES

13. Larry D. Burks, MPA13 Surplus (Deficit) Per Capita Total Surpluses (Deficits) / Population measures the amount of a government’s surplus (or defect) per resident provides information regarding spending levels per resident deficits indicate a lack of funds, a needed increase in revenues, and room for service improvements

14. Larry D. Burks, MPA14 STATEMENT OF ACTIVITIES POPULATION

15. Larry D. Burks, MPA15 Long Run Solvency indicates future resource availability of governments determined largely by current long-term obligations or liabilities combination of the 3 ratios used have both positive and negative relationships –Net Asset Ratios have a negative association with Long-term Liability ratios and Long-term Liability Per Capita –both liability ratios have a positive relationship

16. Larry D. Burks, MPA16 Net Asset Ratio Net Assets / Total Assets measures the portion of net assets compared to total assets larger ratio indicates a higher level of long-run solvency determines what percentage of total assets is paid for and what percentage of total assets is still classified as a liability indicator provides a clear picture of a government’s future spending and ability indicates ability to overcome emergencies and down cycles in the economy

17. Larry D. Burks, MPA17 STATEMENT OF NET ASSETS

18. Larry D. Burks, MPA18 Long-term Liability Ratio Long-term Liabilities / Total Assets measures a government’s ability to pay off long-term debt by comparing long-term liabilities to total assets higher ratio indicates lower level of ability to pay off long-term debt or a strain on future resources higher ratio indicates increasing levels of long-term obligation

19. Larry D. Burks, MPA19 STATEMENT OF NET ASSETS

20. Larry D. Burks, MPA20 Long-term Liability Per Capita Long-term Liabilities / Population measures the amount of long-term liability per resident analyst can determine the level of debt incurred in relation to the population higher levels of debt per person, indicates a declining level of long-term solvency –also suggests declining levels of service delivery as a whole over the long-term

21. Larry D. Burks, MPA21 STATEMENT OF NET ASSETS POPULATION

22. Larry D. Burks, MPA22 Service Solvency measures government’s ability to pay and sustain existing service levels Tax Per Capita ratio and Revenue Per Capita ratio measure tax burden and revenue burden of residents Expenditure Per Capita ratio is an indication of the cost of services per resident all three indicators will show lower levels of service solvency as the indicator figures increase

23. Larry D. Burks, MPA23 Tax Per Capita Taxes / Population measures the relationship between taxes paid per resident of the population provides a calculation to determine how much tax burden per resident in a state is collected to cover liabilities and expenses useful to monitor increases and decreases in tax revenue illustrates the costs of running government and providing services to each taxpayer

24. Larry D. Burks, MPA24 STATEMENT OF ACTIVITIES POPULATION

25. Larry D. Burks, MPA25 Revenue Per Capita Total Revenues / Population measures taxes but includes all other revenues such as fees and fines provides a calculation determining how much total revenue was collected per resident of a government to cover liabilities and expenses illustrates the increases and decreases in revenue collection trends can help analyst predict a government’s ability to provide services to its community or find a cause and effect relationship

26. Larry D. Burks, MPA26 STATEMENT OF ACTIVITIES POPULATION

27. Larry D. Burks, MPA27 Expenditure Per Capita Total Expenses / Population measures resident’s burden in relation to a government’s total expenses also provides an indication of how well services are managed the higher the contribution per resident, the lower the service solvency level can provide information to find causes of changes and provide solutions to correct a situation if needed

28. Larry D. Burks, MPA28 STATEMENT OF ACTIVITIES POPULATION