A Model of Financial Performance Analysis Adapted for Nonprofit Organisations

Measurement of financial performance by ratio analysis helps identify organisational strengths and weaknesses by detecting financial anomalies and focusing attention on issues of organisational importance. Given that the mission of a nonprofit organisation is the reason its existence, it is appropriate to focus on financial resources in their relationship to mission. Turk et al (1995) suggested that the key to analysis and measurement of the financial and operational control and impact is related to the central question: What is the organisation’s mission? Their model reflects the interrelationship between a series of questions about the mission and the financial resourcing and control of the organisation. They suggest that such a framework provides an appropriate analysis for past performance which will help an organisation chart its future direction. This paper analyses financial performance by considering ratio analysis in order to identify anomalies and focus attention on matters of significant concern to NPOs. It discusses the centrality of mission in the use of financial ratio analysis and extends Turk et al’s (1995) financial performance model for analysis and measurement of financial and operational control. The paper also identifies the limitations of such analysis and suggestions for now the model can be applied to individual nonprofit organisations