Calculate LFC’s program services ratio for 2021 and 2020 as well as the percent change in each from 2020 to 2021. Is LFC’s program services ratio for 2021 higher than the commonly accepted benchmark?
6. Given your answers to questions 4 and 5, would you recommend that LFC reallocate some of its spending from program services to fundraising in 2022? Why or why not?
7. What was LFC’s depreciation expense in 2020 and 2021? Which financial statement(s) provide this information?
8. Now that receivables constitute a much larger proportion of LFC’s assets than in the past, the executive director has asked you to calculate the receivables turnover ratio and average collection period for 2021.
a. Which revenue items will you exclude from the ratio? Why?
b. What is LFC’s receivables turnover ratio and average collection period for 2021? Are they favorable or unfavorable? Why?
c. Would you recommend recalculating the receivables turnover ratio using the average of beginning-of-year and end-of-year receivables in the denominator? Why or why not?
9. Calculate the quick ratio and debt to equity ratio for LFC for 2021 and 2020 as well as the percent change in each from 2020 to 2021. Are these trends favorable or unfavorable? Which presents the greater area of concern in 2021, and why?
10. Given your answers to the questions above and an overall review of LFC’s financial statements, would you characterize LFC’s financial position as weak, neutral, or strong? Why?