Monday, June 22, 2020

The Tree of Money


The Tree of Money





Columbia Association's (CA) balance sheet for the periods ending April 30, 2016 though 2019. The April 30, 2020 financial statement will be available to the public this summer. Balance sheets represent a snap shot of the financial health of the organization versus the Income Statement that is similar to a video of the twelve month activities of the organization. The focus of this article will be an explanation of the financial trends in its balance sheet and Statement of Cash Flows. Only publicly available information will be used in this article. The table below is in thousands of dollars.

FY April 30,

2016

2017

2018

2019

Cash

702

1,845

68

72

Total Current Assets

14,300

10,826

4,919

4,750

Property, Plant, and Equipment

115,006

 

117,690

130,293

135,600

Total Assets

139,169

138,544

145,496

150,809

Line of Credit

0

1,845

5,905

11,001

Current Liabilities

25,519

21,391

 

25,901

29,258

Long Term Liabilities

27,640

26,041

24,225

22,345

Total Liabilities

53,159

47,432

50,126

51,603

Net Assets

86,010

91,112

95,370

99,206

Total Liabilities and Net Assets

139,169

138,544

145,496

150,809



Stakeholders utilize balance sheets to determine the liquidity of the entity. The ratios below have been calculated from publicly available financial data on CA's website. 

FY April 30,

2016

2017

2018

2019

Quick Ratio

0.0275:1

0.0863:1

0.0026:1

0.0034:1

Current Ratio

0.56:1

0.51:1

0.19:1

0.16:1


Accounting liquidity measures the ease which an entity can meet its financial obligations with its cash or near-cash assets and pay its debts or bills as they become due. There are two financial ratios, the quick ratio and current ratio, calculated above. They differ as to how they define "liquid assets." The current ratio includes all current assets against current liabilities. The Quick Ratio includes only cash and cash equivalents against current liabilities. Most businesses strive to have a current ratio of at least 1:1 to be considered liquid. CA's current ratio is less than 1:1, and has been trending downward since 2016. This data should be analyzed with CA's cash flow statement to provide stakeholders with a 360 degree view of CA's financial management. The table below is a summary of the Statement of Cash Flows from CA's financial statements available on its website. All numbers are stated in 000's.

 FY April 30,               2016 2017 2018 2019
 Increase in Unrestricted Net 
Assets (Net Income) 
     4,461 5,102 4,258  3,836
 Cash Generated From 
Operating Activities
 13,129 15,345 18,103 14,246
 Long Term Debt (Repayment) (1,567)(1,629) (1,690) (1,753)
 Capital Projects (9,955) (12,281) (23,774) (17,533)
 Cash(Repayment)Borrowing
 on Line of Credit
 (922) (307) 5,905 5,096
 Line of Credit Balance  307 - 5,905 11,001

The above summary of the cash flow of CA reflects a generous amount of cash generated from operations. However, CA did not use this cash flow to strengthen its financial position by setting up cash reserves or funds for use in an emergency situation. Instead, CA used the funds for an expansion in Sports and Fitness capital projects. There was little to no increase in revenue, no Increase in Net Unrestricted Assets (Net Income), and no measurable return on investment. 

Restructuring the line of credit to a term loan would improve the liquidity of the Association, but a cultural shift must occur to bring the continued reliance on lines of credit and not planning for a rainy day by funding cash escrow accounts to an end. 






  

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