1. Financial Statement Analysis
Music Academy of North Carolina
Fiscal Years 2008-2011
Prepared 4.15.12 by Amelia Gallo, Priscilla James, Kim Miller and Miranda Dalton
PSC 545 – Nonprofit Financial management & Budgeting
Spring 2012

2. Overview of MANC
• Located in the Greensboro, NC
• An organization that offers musical instruction
and other services to its constituents
• Has grown to be the number one resource in
North Carolina offering music education to
individuals of all ages.

3. Overview of MANC
Financial Practices
• Bason & Company, PA in Greensboro, NC hired to audit financial
statements
• Bason & Company did not prepare the financial statements. They
accounting agency performed “review of financial statements
• MANC prepared their own statements
a. Statement of Financial Position
b. Statement of Activities
c. Statement of Cash Flows
d. Schedules of Functional Expenses (Supplement)

4. Financial Analysis Approach
• The Statement of Financial Position, Statement of Activities and the
Statement of Cash Flows for years 2008 to 2011 were examined to
determine the financial health of the organization.
• An examination of the auditor’s letter and the notes section were studied
to provide clearer understanding of the organization’s financial
management practices.
• From the information, a series of ratios were calculated to examine the
trends and patterns of the organization and to benchmark against industry
standards.
• Two Hundred Fifty One for-profit musical instruction businesses were used
in aggregate to benchmark the Music Academy of North Carolina.
• Recommendations were provided for future financial planning and
organizational sustainability and viability.

5. Ratios Utilized
• Common Size Ratios - (Assets, Liabilities and Net Assets)
• Liquidity Ratios - (Current Ratio)
• Total Asset Turnover
• Leverage Ratios ( Debt, Debt to Equity and Cash Flow Coverage)
• Profitability (Return on Assets and Return on Net Assets)
• Program Services

6. Auditor’s Opinion Letter
• The Music Academy’s two auditor’s opinion letters revealed
a format consistent to the format delineated in the course
readings.
• Bason & Company concluded that MANC’s financial
statements between 2008-2011 presented a fair
representation of the financial position of the organization.

7. Notes Section
• The notes section in the 2008-2011 financial statements
provided further clarification about the financial position
and practices of MANC.
• Some areas were ambiguous and needed further clarity in
the financial practices of the organization.
• Secondly, information revealed in 2008/2009 was not
revealed in the 2010/2011 notes section and vice versa.

8. Quick Overview of Financial
Statements
• Positive fund balance or net assets
• The Statement of Cash Flows reveals that the organization did
not have a significant amount of cash on hand
2008 2009 2010 2011
15,523 7,364 11,916 4,751
• Most of the organization’s assets were held in the temporarily
restricted line item except in 2011.
• The next three slides provide an overview of MANC’s Common
Size Ratios

9. 2008 2009 2010 2011
Common Size Ratio
Assets
Cash and Cash Equivalents .02 – 2% .01 – 1% .02 – 2% .01 – 1%
Tuition Receivables .0008 - >1% .002 - >1% .002 - >1% .004 - >1%
Miscellaneous Receivables .002 - >1% .01 – 1% .001 - >1% .001 - >1%
Prepaid Expenses .000 – 0% 0 – 0% 0 – 0% .01 – 1%
Unconditional Promises to Pay .07 – 7% .14 – 14% .15 – 15% .19 – 19%
Endowment Cash for String
.19 – 19% .21 – 21% .20 – 20% .01 – 1%
Competitions
Community Foundation of Greater
.64 – 64% .54 – 54% .57 – 57% .73 – 73%
Greensboro

10. 2008 2009 2010 2011
Common Size Ratio
Liabilities
Accrued Salaries .35 – 35% .26 – 26% .14 – 14% .02 – 2%
Unearned Revenue .13 – 13% .08 – 8% .16 – 16% .31 – 31%
Line of Credit .35 – 35% .39 – 39% .56 – 56% 0 – 0%
Capital Lease Payments .02 – 2% .16 – 16% .08 – 8% .33 – 33%
Accounts Payable .13 – 13% .09 – 9% .05 – 5% .34 – 34%

11. 2008 2009 2010 2011
Common Size Ratios
Net Assets
Unrestricted Assets .04 – 4% .004 - >1% .06 – 1& .22 – 22%
Temporarily Restricted Assets .52 – 52% .62 – 62% .52 – 52% .31 31%
Permanently Restricted Assets .44 – 44% .38 – 38% .42 – 42% .48 – 48%

12. Quick Overview of
Financial Statements
2008 2009 2010 2011
Current Ratio
Current Ratio 1.4 1.9 1.3 7.7
• Between 2008-2010, MANC’s current ratio fell below the acceptable benchmark
of 2.0; however, in 2011 the current ratio was 7.7. Finkler would argue that the
organization did not invest their assets wisely in 2011.
• Ninety one percent of MANC’s current assets were held in the unconditional
promises to pay line item.

13. Quick Overview of
Financial Statements
2008 2009 2010 2011
Asset Turnover
Total Asset Turnover 1.06 1.22 1.38 1.66
Revenue generated per dollar
invested
• MANC’s average of 1.33 % is a little less than half of the industry benchmark,
which suggests that in this area of efficiency, the MANC is operating significantly
below the accepted industry standard.
•This suggests that the organization is not using their resources effectively.

14. Quick Overview of
Financial Statements
• The definition for debt can be defined by the organization or
business.
• Our analysis compared results when debt was defined as “total
liabilities” and “line of credit plus capital lease payments.” The
latter definition provides a clearer picture of the organization in
2010.
Total Liabilities Definition Line of Credit plus Capital Lease
Payments Definition
MANC within the industry standards MANC financed over half of their
operations with debt and the organization
is not able to pay its creditors with its
profits in 2010

15. Total Liabilities Definition
2008 2009 2010 2011
Leverage and Coverage Ratios
Debt .07 – 7% .08 – 8% .13 – 13% .03 – 3%
Debt to Equity .07 .09 .15 .03
Line of Credit plus Capital Lease Payments Definition
2008 2009 2010 2011
Leverage and Coverage Ratios
Debt .024 – 3% .046 – 5% .753 – 75% .009 – 1%
Debt to Equity .026 .050 .867 .009
Cash Flow Coverage Ratio
2008 2009 2010 2011
Coverage Ratios
Cash Flow Coverage 1.15 2.23 1.21 1.24

16. Quick Overview of
Financial Statements
2008 2009 2010 2011
Profitability Ratios
ROA .007 -0.12 .007 .013
RONA .007 -0.13 .008 .013
MANC’s profitability is very low. It is not an organization that focuses on profits, but
the organization makes enough profit to support its mission and to meet all its
obligations.

17. Quick Overview of
Financial Statements
2008 2009 2010 2011
Program Services Ratio
Programs .579 – 58% .562 – 56% .494 – 49% .495 - 50%
Administrative .312 – 31% .288 – 29% .255 - 26% .288 - 29&
Fundraising .109 – 11% .150 – 15% .251 – 25% .216 – 22%
The Music Academy invests a significant proportion of its operating budget into
the perpetuation of their mission through facilitated music instruction.

18. Recommendations
• Develop a plan of action to generate more profit/cash for the
organization in an effort to have more cash on hand to ensure the
sustainability of the organization during emergencies.
• Develop a plan of action allowing the amount of assets in unrestricted
assets to increase permitting management more flexibility financial
planning.
• As the number of assets increase, the organization should ensure that
resources are being used in the most efficient manner and yielding
maximum return for the organization.
• Avoid acquiring as much debt as possible to prevent the organization
from being a highly leveraged organization and increasing the risk of
not meeting its near term obligations.

19. Recommendations
• Although profits are not the objective of the
organization, develop a strategic plan that will allow
the organization to expand programs and services.
• The notes section should provide more clarity and give
more detail to readers. This will allow readers to make
connection between each fiscal year and avoid the
tendency to make assumptions.
• Continue the organization’s strategy in keeping
administrative and fundraising costs low without
sacrificing program service and delivery.