For our Exam #3 you will perform an assessment of the City of Homer, Alaska CAFR using the ratios identified in Chapter 10.
You will compute all the ratios for 2 comparative years, and provide a brief interpretation/assessment of the observed changes in relation to the financial condition of Homer. You may use your textbook, notes and other resources to complete this exam but all work must be your's alone. No collaboration with other students. It must be your individual work only. So download the CAFR provided below, and compute the ratios shown on 10-3 and 10-4.
I strongly recommend using Excel to compute all of your ratios, and to provide your interpretations. Your work should be well organized and clearly labeled.
Illustration 10-3 Selected Financial Ratios Based on CAFR Governmental Funds Information Indicator Computation Suggestions for Analysis Revenues Measures: Revenues per capita Population Total Operating Revenues 2 If per capita operating revenues are decreasing the government may not be able to maintain existing service levels unless it finds new sources of revenue. Intergovernmental revenues Total General Fund Revenue 2 General Fund Intergovernmental Revenues A large percent is warning sign because it indicates the government is dependent on revenues it does not control. Expenditures Measures: Expenditures per capita Population Total Operating Expenditures 3 Determine which functions are increasing and if the increase represents increased services or new services. Are there sufficient revenues to pay for these? Employees per capita Population (or households) Number of municipal employees If personnel costs (as measured by the number of employees) are increasing at a greater rate than the population base, determine why this is happening. Operation Position Measures: Revenues over Expenditures Total Operating Revenues 2 Total Operating Expenditures 3 The ratio should be evaluated for a trend. As a benchmark, and average of 1.05 or greater is considered very strong, with 1.0 considered average and 0.95 or less weak. Operating Surplus/deficit General Fund Operating Revenues 2 General Fund Operating Surplus/Def icit 4 Abnormally large deficits (5 percent or more) or two or more years of consecutive deficits are warning signs. Fund Balances General Fund Balances 5 General Fund Operating Revenues 2 Declining fund balances as a percentage of net operating revenues can affect a government’s ability to withstand financial emergencies. Liquidity Current Liabilities Cash and short−term investments If this measure of a government’s cash position i less than 1, then determine if this is a temporary situation or whether causes, such as receivables, may persist, leading to long term solvency concerns. Debt Indicators: Long-term Debt General Obligation long−term Debt 6 Assessed V aluation (or population or personal inome) An increase in this ratio may be an indication that the government’s ability to repay the debt is diminishing. Warning signs would include debt that exceeds 10% or assessed value, an increase of 20% over the previous year, or an increase of 50% over the prior four years. Current Liabilities Current Liabilities Operating Revenues 2 A value of 5% or greater or an increasing trend is considered a warning sign. Debt Service General Fund Operating Revenue 2 Principal and Interest Payment of Debt An increasing percent reduces expenditure flexibility. A warning sign would include a value greater than 20%. Values below 10% are considered acceptable. Unfunded Liability Measures: (This category is only useful if the government manages its own pension plan.) Pension Obligations Salaries and Wages Pension Obligations An increasing amount of net position obligation is a negative signal that should be investigated to determine if the trend of not funding annual pension cost is expected to continue. Funded Ratio Net PositionTotal Pension Liability Level of funding is an indicator of future financial condition. A widely used benchmark for adequacy of funding if 70 - 80% Capital Plant Indicators: Capital Outlay Operating Expenditures 3 Capital outlay f rom Operating Funds If a decline in the relationship between expenditures for general capital assets, which adversely affects delivery of government services. Illustration 10-4 Financial Indicators Using the CAFR Performance Measures Description Ratios Financial Position: Unrestricted Net Position A measure of the adequacy of the amount of the government’s total unrestricted net position or level of deficit at the measurement date. Total Revenue Unrestricted Net Position Capital Asset Condition A measure of the extent to which of the government’s total depreciable capital assets, on average, are reaching the end of their useful lives and therefore, may need replacement. Accumulated Depreciation Average cost of Depreciable Capital Assets Debt to Assets A measure of the which the government’s total assets have been funded with debt as of the measurement date. Total Assets Total Liabilities Current Ratio A measure of the government’s ability to pa its short-term obligations as the become due. Current Assets Current Liabilities Quick Ratio A more conservative measure of the government’s liquidity that focuses on unrestricted cash and cash equivalents. Current Liabilities Unrestricted Cash and Cash Equivalents Financial Performance: Change in Net Position A measure of the change in the overall financial condition of the government that includes governmental and business-type activities (BTA) but not fiduciary activities or discretely presented component units. Total beginning Net Position Total ending Net Position − Total beginning Net Position Interperiod Equity A measure of whether the government has lived within its mean for the year. Net Revenues Total Expenses BTA Self-Sufficiency A measure of the extent to which the government’s business-type activities (BTA) are funded with current-year charge revenues, rather than prior year resources or subsides from other funds. BTA Total Expenses BTA Service Charge Revenues Financial Capability: Revenue Dispersion A measure of the exposure to potential financial difficulties resulting reliance on revenue sources beyond the direct control of the government. Charges for Services Total Revenue (exclude special or extrodinary items) Bonded Debt per Capita A measure of the government’s bonded debt burden on its taxpayers. Population General Bonded Debt Available legal Debt Limit A measure of the government’s capacity to issue general bonded debt. Legal Debt Limit General Bonded Debt Property Taxes per Capita A measure of the government’s property tax burden on its taxpayers. Population Property Tax Levy Microsoft Word - City of Homer - 2017-1 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. City of Homer, Alaska Basic Financial Statements, Required Supplementary Information, Supplementary Information, and Single Audit Reports Year Ended December 31, 2017 City of Homer, Alaska Basic Financial Statements, Required Supplementary Information, Supplementary Information, and Single Audit Reports Year Ended December 31, 2017 City of Homer, Alaska Contents i Exhibit Page Independent Auditor's Report 1-3 Management’s Discussion and Analysis 6-15 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position A-1 18 Statement of Activities A-2 19 Fund Financial Statements: Governmental Funds: Balance Sheet B-1 20 Reconciliation of Governmental Funds Balance Sheet to Statement of Net Position B-2 21 Statement of Revenues, Expenditures, and Changes in Fund Balances (Deficit) B-3 22 Reconciliation of the Change in Fund Balances of Governmental Funds to Statement of Activities B-4 23 Proprietary Funds: Statement of Net Position C-1 24 Statement of Revenues, Expenses, and Changes in Net Position C-2 25 Statement of Cash Flows C-3 26-27 Notes to Basic Financial Statements 28-57 Required Supplementary Information Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual: General Fund D-1 60 Utility Special Revenue Fund D-2 61 Public Employees Retirement System: Schedule of the City's Information on the Net Pension Liability E-1 62 Schedule of City Contributions E-2 63 Notes to Required Supplementary Information 64 City of Homer, Alaska Contents ii Exhibit Page Supplementary Information Combining and Individual Fund Financial Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet F-1 67 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances F-2 68 General Fund: Balance Sheet G-1 70 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual G-2 71-76 Utility Special Revenue Fund: Combining Balance Sheet H-1 78 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual H-2 79 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances (Deficits) H-3 80 Port of Homer Enterprise Fund: Statement of Net Position I-1 82 Statement of Revenues, Expenses, and Changes in Net Position I-2 83 Statement of Cash Flows I-3 84-85 Internal Service Funds: Combining Statement of Net Position J-1 88 Combining Statement of Revenues, Expenses, and Changes in Net Position J-2 89 Combining Statement of Cash Flows J-3 90 Health Insurance Internal Service Fund: Statement of Net Position J-4 91 Statement of Revenues, Expenses, and Changes in Net Position J-5 92 Statement of Cash Flows J-6 93 City of Homer, Alaska Contents iii Exhibit Page Supplementary Information, continued Combining and Individual Fund Financial Statements and Schedules, continued: Leave Cash-out Internal Service Fund: Statement of Net Position J-7 94 Statement of Revenues, Expenses, and Changes in Net Position (Deficit) J-8 95 Statement of Cash Flows J-9 96