Question

Compare the financial performance of the two organizations and provide suggestions (based on the comparison) for the Walden Conservatory of Music, both from a financial and operational perspective. In Memo Format.

New England Conservatory of Music (NEC) Based on 2017 Form 990

Liquid Funds Indicator = 4.25 months

Debt to Asset Ratio= 18.9%

Debt to NA ratio = 123.9%

Program Service Ratio = 85.9%

Savings Indicator = 22.5%

Current Ratio = 3.45

Defensive Interval = 3.24

Liquid Funds Amount = ($111,359,654)

Return on Investment = 4.94%

Times Interest Earned Ratio = 22.2

Walden Conservatory of Music Based on 2017 Form 990

Liquid Funds Indicator: 1.52 months  

Debt to Asset Ratio: 18.3%

Debt to NA Ratio: 22

Program Service Ratio: 75.9%

Savings Indicator: 4.12%

Current Ratio: 2.34

Defensive Interval: 2.43

Liquid Funds Amount: ($580,418)

Return on Investment: 6.9%

Times Interest Earned Ratio: 6.36

Answer 1

Particulars	New England Conservatory of Music (NEC)	Walden Conservatory of Music (WCM)
Liquid Funds Indicator	4.25 months	1.52 months
Debt to Asset Ratio	18.90%	18.30%
Debt to NA ratio	123.90%	22
Program Service Ratio	85.90%	75.90%
Savings Indicator	22.50%	4.12%
Current Ratio	3.45	2.34
Defensive Interval	3.24	2.43
Liquid Funds Amount	($111,359,654)	($580,418)
Return on Investment	4.94%	6.90%
Times Interest Earned Ratio	22.2	6.36

1. The liquid funds indicator (LFI), measures how many months the organization can continue before it exhausts its liquid assets, assuming that no additional cash flows into the organization. NEC can continue for more months as compared to WCM so its better in terms of Liquid Funds indicator than WCM.

2. The debt to total assets ratio is an indicator of a company's financial leverage. It tells you the percentage of a company's total assets that were financed by creditors. In other words, it is the total amount of a company's liabilities divided by the total amount of the company's assets. A lower ratio signals a stable company with a lower proportion of debt. A higher ratio means that a higher percentage of the assets can be claimed by the company's creditors. WCM is better in terms of Debt to Asset ratio than NEC.

3. The debt-to-net assets ratio, also known as the debt-to-equity ratio or D/E ratio, is a measure of a company's financial leverage. Since debts represent amounts the company must repay and net assets represent assets free of obligations, the ratio indicates what ability the company has to repay debts. Creditors often calculate this ratio when making lending decisions. If a company has a high ratio, a lender may only lend at a very high interest rate or not lend at all. WCM is in better position in this case.

4. The program ratio measures the relationship between program expenses and the organization's total expenses. NEC is more efficient in this case than WCM.

5. The savings indicator measures the increase or decrease in the ability of an organization to add to its net assets. NEC is better than WCM in this case.

6. The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. Higher the current ratio better it is. NEC is better as compared to WCM. Higher the ratio, better it is, So, NEC is performing better in this case.

7. Liquid funds are debt funds that invest in short-term fixed-interest generating money market instruments. These can be treasury bills, commercial paper, and so on, which mature within 91 days

8. The defensive interval ratio (DIR) is a financial liquidity ratio that indicates how many days a company can operate without needing to tap into capital sources other than its current assets. Since, the figure is given in negative, it represents liability. WCM is appearing better in this case.

9. ROI means that the firm is successful at using the investment to generate high returns. WCM is appearing better in this case with high ROI

10. The times interest earned ratio is an indicator of a corporation's ability to meet the interest payments on its debt. A higher times interest earned ratio is favorable because it means that the company presents less of a risk to investors and creditors in terms of solvency. NEC is better in this case.