Why are potential donors to a not-for-profit charitable organization most interested in a "program expense to total expense" ratio calculated from financial statement information? Donors want to obtain a comfort level with their "investment" that the targeted charity manages its non-program expense spending as efficiently as possible. How to analyze the annual report for a national or local charity organization? Listed lines from financial report:

a.            Total revenue,

b.            Program service expenses, and

c.             Total expenses.

How to calculate the ratio of the program service expenses to the total expenses. For example, there may be an organization with a 70% ratio, and one with a 90% ratio. Is there anything one should notice in the annual report or know about the company that may have contributed to one organization having a lower ratio than the other? What about the ratio of total expenses to total revenue? What company should one contribute to if they were an interested donor?

Answer rating: 100% (QA)

The purpose of the notforprofit organization is to perform charitable as well as noneconomic activities The organizations never earn to spend but they ... View the full answer