Evaluation of Arts Organizations' Financial Health
Julie VW
SMU
Non-Profit Financial Management I AA 660
December 7, 2002
In second grade, Ms. Gallegar taught me (and the 18 other students in her class) that germs make people sick. She explained that killing germs, and avoiding other people's germs, would prevent sore throats and stuffy noses at Nathan Hale Primary School. Since then, I have invested considerable time and energy trying to keep germs (and sore throats) out of my life.
In 2002, the latest scientific evidence suggests that exposure to germs may prime the immune system and actually prevent people from getting sick. Researchers hypothesized that our bodies need microbes and bacteria to prevent allergies, asthma and autoimmune diseases(Allen, 2002).
It feels counterintuitive to my 8 year old understanding of the world to realize germs might be good for me. It also feels counter intuitive to conclude that an organization with less money can maintain a stronger financial position than one with more cash. However, an abundance of money does not guarantee financial health any more than the absence of bacteria guarantees physical health. In 1999 The Playwrights Center demonstrated consistency, stability, profitability, and healthy spending balances on the financial statements. Intermedia Arts did not. I believe the Playwrights Center maintains the stronger financial position despite a smaller bank account.
Stability
The Playwrights Center demonstrates greater financial stability than Intermedia Arts. In 1999 the profits of both organizations dropped. The Playwrights Center kept $.17 (exhibit 1) of every dollar that came into the organization in 1998 and $.14 (exhibit 2) in 1999. Intermedia Arts had a significantly better total margin in 1998 keeping $.25 (exhibit 3) of each dollar, but it dropped 228% (exhibit 4) in 1999. That year Intermedia Arts lost $.32 (exhibit 5) for every dollar they earned. Although both organizations decreased their profitability in 1999, The Playwrights Center remained relatively stable.
The Playwrights Center also demonstrates stability in amount of money they earn and spend. Between 1998 and 1999 revenue changed by only 2%(exhibit 6). Expenses decreased by 1% (exhibit 7). Intermedia Arts fluctuated greatly between the 2 years with revenues decreased by 39% (exhibit 8) and expenses increased by 7%(exhibit 9). A certain amount of stability from one year to the next makes planing easier and suggests financial soundness.
Responsibility
Based on information in the financial statements, the Playwrights Center demonstrates greater fiscal responsibility than Intermedia Arts. Both organizations made less money in 1999 than in 1998. The Playwrights, however, spent less money in 1999 almost matching their 2% (exhibit 6) decrease in revenue with a 1% (exhibit 7) decrease in spending patterns. Intermedia Arts did not do this. In 1999 they increased spending by 7%(exhibit 9) even though 39% (exhibit 8) less money came into the organization.
Healthy Balance in Spending
The stability and responsibility of the Playwrights Center overlaps to their allocation of money. In 1998 Intermedia Arts spent 91% (exhibit 11) of its money on programs and 9% (exhibit 12) on Administration, support, and fund-raising. In 1999, the organization poured an additional $61,039 (exhibit 13) into administrative funding resulting in a 56% (exhibit 14) increase in spending in that category.
According to Elizabeth Childs, a healthy balance between program and administrative spending happens when an organization devotes approximately 70% of the money to program costs and 30% to administration. The Playwrights Center kept this balance in both 1998 (exhibit 15) and 1999 (exhibit 16). Intermedia Arts did not.
Profitability
At the end of the year, the financial statements show that the Playwrights Center made money as a result of operations and contributions with an additional $84,206 added to their coffers. Intermedia Arts ended the year at a loss with $326,750 taken out of their bank account
There are many reason Intermedia Arts may not have turned a profit in 1999. Without more information it is impossible to determine Intermedia Arts exact financial position compared to the Playwrights Center. Based on the information available, I believe the Playwrights Center hold a stronger financial position that Intermedia Arts.
Exhibits
Exhibit 1 - PWC Total Margin ‘98
103,940 / 594,106 = .17
Exhibit 2 - PWC Total Margin ‘99
84,206 / 581,641 = .14
Exhibit 3 IMA Total Margin ‘98
429,813 / 1,692,672 = .25
Exhibit 4 % change in IMA Total margin
1999 1998 $ +/- % +/-
Total
Margins (.32) .25 .57 228%
Exhibit 5 IMA Total Margin ‘99
(326,750) / 1,021,968 = (.32)
Exhibit 6 PWC change in support and revenue
1999 1998 $ +/- % +/-
Revenue 581,641 594,106 (12,465) -2%
Exhibit 7 PWC Change in Expenses
1999 1998 $ +/- % +/-
Expense 497,435 490,166 7,269 1%
Exhibit 8 IMA Change in Revenues
1999 1998 $ +/- % +/-
Revenue 1,021,968 1,692,672 (670,704) -39%
Exhibit 9 IMA Change in Expenses
1999 1998 $ +/- % +/-
Expenses 1,348,718 1,262,859 85,859 7%
Exhibit 11 1998 IMA Program Spending
1,154,018 / 1,262,859 = 91%
Exhibit 12 1998 IMA Administration Spending
108,841 / 1,262,859 = 9%
Exhibit 13
169,880 - 108,841 = 61,039
Exhibit 14
1999 1998 +/- % +/-
Admin.
Spending 169,880 108,841 61,039 56%
Exhibit 15 1998 PWC Program Spending
1,154,018 / 1,262,859 = 91%
Exhibit 16 1999 PWC Program Spending
1,187,838 / 1,,348,718 = 87%
Reference
Allen, J. (2002). Obsession with cleanlinesss can reach
unhealthy proportions [Electronic version]. Minneapolis
Star Tribune. Retrived December 2, 2002 from
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