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Financial Analysis of NGO: Red Cross

Free Financial Analysis Essay of NGO: Red Cross

Organization’s Background

The American Red Cross is a humanitarian-based organization that provides emergency support, disaster relief as well as education programmers across the United States of America. It was established in 1881 in Washington, United States (The American National Red Cross, 2013). Talking about the ARC, it is a designated US affiliate of the IFRCRCS. The organization also provides community-based services that are focused on helping the needy, communication-based services and care for military members as well as their respective family members as well as the collection, processing and distribution of blood and related products (The American National Red Cross, 2013). I decided to evaluate this organization because it is one of the popular non-governmental organizations in the United States of America and beyond. Furthermore, I do not have any prior relationship to the organization; however, it has made its financial statements public, thereby making it easier to evaluate its financial status.

Financial Status

The company’s total asset increased significantly in the period between 2012 and 2013 from $3.7M to $3.7M respectively (The American National Red Cross, 2013). The increase indicates a favorable position given that the level of investments, trade receivables and grants has increased tremendously over the years. Total current liabilities have also increased from $463,524M to $502,178M in 2012 and 2013 respectively (The American National Red Cross, 2013). Despite this increase, the organization’s level of assets has remained reliable over time.

The firm’s current ratio for the two years can be computed as follows:

Current ratio= current assets/current liabilities

2012 =1,105,103/463,524= 2.38

2013=1,150,432/502,178=2.29

From the figures above, it can be seen that the organization’s liquidity falls slightly from 2.38 to 2.29 in 2012 and 2013 respectively. Despite this decrease, it can be ascertained that the firm’s liquidity position is favorable in comparison to the standard averages. It means that the American Red Cross can meet its short-term obligations in a timely manner.

The favorability of this ratio also signifies the fact that the organization is fairly positioned in regard to the overall debt burden. In fact, it portrays the fact the company’s cash flows are intact and can be utilized any time the firm has emergency assistance to provide.

The organization’s total operating revenues and gains increased tremendously within the 2012 and 2013 financial periods from $3.1M to $3.4M respectively. The increase in these revenues has been realized due to a significant increase in the level of contributions, especially corporate, foundation and individual giving funds. However, the increase does not coincide with the increase in the total operating expenses within that period. A higher level of revenues for the company means that it enjoys immense financial statuses, which might aid in meeting all of its expenses without being dependent on any other form of debt financing. Since it is a non-profit organization, the American Red Cross seems to insure that financial stability is made a priority in order to insure future survival hence provision of emergency-related support.

A clear look at the organization’s cash flow statements also provides distinctive insights into its financial conditions. The net cash used in operating activities has reduced over the two years from $287,289 to $108,327 in 2012 and 2013 respectively (The American National Red Cross, 2013). The same pattern is reflected with regard to cash used in investing activities. On the contrary, the cash provided as a result of financing activities has increased tremendously from $14,725 to $182,644, which postulates a stable future for its continued operations (The American National Red Cross, 2013).

At the end of 2013, the amount of cash available for the following year was in excess of about $82,721(The American National Red Cross, 2013).

Given that this company is a not-profit organization, it has made it a priority to always have in its possession a substantial amount of cash resources needed for any level of emergency services. Thus, it can be seen that there are no expenses related to marketing some of its products to the clients, since it is the needy that seek its support. It is possible to explain the reason for the low-level cash available for following financial years because the organization is only focused on providing help to the needy when disaster strikes. In fact, it is almost a challenge for this form of organization to adhere to the already formulated budgets because disaster might strike any moment. While most of the companies in the case assignment were profit-making in nature and hence concentrated on activities that will insure profit maximization, the American Red Cross does not operate under that objective. Consequently, the cash available for future operations of the companies in the case assignment continued increasing. Apparently, this is mainly due to their capacity to formulate and implement accurate budgets meant to be attained within the period. Thus, policies like retaining earnings as opposed to issuing dividends as well as increasing reserve capitals are meant to insure that those organizations operated on a going concern.

It is a challenge to compare the financial conditions of the American Red Cross to those organizations of the case assignment because they operate under different industries and objectives. Most of the companies used in the case assignment operated under the objective of maximizing profits as well as shareholders wealth, while for the American Red Cross, the objective is not to make profits but to provide emergency assistance with cash resources offered by voluntary sponsors across the United States of America.

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