Performance Analysis Of Age UK: Financial And Non-financial Evaluation

Performance Measurement

The present report is developed for gaining an analysis of the performance measurement of non-profit organizations in the context of sustainability accounting and reporting. In this context, the performance of a NGO, that is, Age UK, one of the largest charity of the UK working for the welfare of old people is analyzed in the report. The financial performance of Age UK is analyzed with the use of ratio evaluation by examining the financial results of the year 2016 and 2017 such as donor dependency, income utilization, raising donations and others. In addition to this, the non-financial performance is analyzed by identification and examination of the KPI’s of Age UK that helps in depicting their performance in the social area of sustainability.

Performance Measurement

Ratio analysis refers to the quantitative analysis of the financial information that is presented in the financial statements. It is done to define the various kinds of relationship between the financial items. In this section of the report, ratio analyse has been made of AGE UK for year 2016 and 2017. As AGE UK is the Not for profit organization there is need to use some specific ratios that helps make proper evaluation of performance measurement of this organization. Detailed ratio analysis of AGE UK has been provided below:

Current Ratio: This ratio is calculated to determine the ability of company to pay the short term liabilities through use of current assets. Generally this ratio is used in profit making companies but NPO uses this ratio to have knowledge that there are sufficient funds to pay off its immediate debts that arises within 12 months. This ratio is calculated as current assets divided by current liabilities. A current ratio of 2:1 is considered to be satisfactory and also this ratio determines the effective management of resources by the organization (Sharma, 2012).

Formula: Current Assets/Current Liabilities

(Annual Report, 2017)

On making the analysis of above table it can be said that in year 2016 AGE UK has current ratio of 1.38 times that indicates that organization has sufficient current assets to pay off the debt liabilities that will arise in next twelve months. In year 2017 this ratio has decreased to 0.92 times that shows organization has failed to maintain the proper assets to meet the current liabilities. In both the years AGE UK has failed to achieve the ideal benchmark of 2:1 times that shows poor liquidity position of AGE UK (Damodaran, 2011).

Quick Ratio: Quick ratio is the important indicator of the liquidity performance as it determines presence of quick assets to pay the current debt liabilities. Quick ratio is similar to the current ratio but there is small difference in calculation as while estimating the quick assets inventory and prepaid expenses are not being considered. The main purpose of this ratio is to estimate availability of most liquidated assets to finance the debt liabilities. The formula of quick ratio is quick assets divided by current liabilities.

Formula: Quick Assets/Current Liabilities

(Annual Report, 2017)

Current Ratio

Quick ratio of AGE UK was 1.35 times in year 2016 and it was decreased to 0.90 times in year 2017 that indicates poor liquidity performance organization in year 2017.

Debt Ratio (Pension Included): Debt ratio is important leverage ratio that it indicates percentage of assets used to pay all the liabilities that has been reported in balance sheet. It is calculated as total liabilities divided by the total assets (Sharma, 2012).

Formula: Total Liabilities/Total Assets

(Annual Report, 2017)

The debt ratio of AGE UK was 56.10% in year 2016 that indicates that more than 56% of assets have been financed using the liabilities while rest of assets have been financed through equity or corpus funds. In year 2017 debt ratio was 55.13% that shows there was no much change in debt ratio as compared to previous year. Debt ratio is true indicator of solvency position and debt ratio of AGE UK clearly indicates major of assets are financed through use of liabilities.

Donor Dependency Ratio: This ratio is calculated as donor income divided total income. If this ratio is high than it indicates that organization dependency on donor funds is high. On the other hand if ratio is less than it indicates organization is independent and very reliance on donor funds (Brigham and Michael, 2013).

Formula: Donor Income/Total Income

(Annual Report, 2017)

It is clearly visible from the above table that AGE UK is mostly dependent upon the donor’s funds as more than 60% of total income is derived from the donors.

Income utilization ratios on raising donations and legacies: This ratio helps to find out percentage of expenses occurred to generate the income from the donations and legacies.

Formula: Expenses for collection of donations and legacies/Income received from donations and legacies (Sharma, 2012)

(Annual Report, 2017)

It has been analyzed from the calculation that AGE UK expends about 10 % to 11% for generating income from the donations and legacies.

Income utilization on charitable activities: This ratio shows percentage of income available for charitable activities is used for the charitable activities (Keating and Frumkin, 2008).

Formula: Expenses incurred from the charitable activities / Income available for charitable activities

AGE UK has used 93.48 % of income in year 2016 while 100% in year 2017 that means organization has started to expend more on the charitable activities.

Survival Ratio: This ratio provides how many days organization can survive if no donations and legacies are generated or all funds are dried up during the year.

Formula: (General Reserve or Unrestricted Funds/Total Income)*365 (Sharma, 2012)

(Annual Report, 2017)

As per the ratio organization can survive for 218 days in year 2017 if no funds will be generated during the year.

Social sustainability can be defined as identification and managing the business impacts, that is, positive and negative, on people successfully. Businesses need to develop the process and structures efficiently so that they are able to meet the varying needs and requirements of communities at present and also in future generations. It involves gaining an in-depth understanding of the impact of business corporations on society at large. The business practices and procedures should be developed in a way so that they are able to produce maximum impact on the society and minimizing its negative effects. The business can improve their social sustainability performance by integrating a social perspective into their governance, systems, processes, practices and operations. The social performance can be enhanced by maintaining positive relations with employees, community and customers.

Social sustainability performance can be improved by businesses through maximizing its economic and environmental performance. Environmental sustainability involves reducing the business activities that negatively impacts the environment and thus maximizing the societal growth. On the other hand, the economic performance involves maximizing its profitability through adoption of adequate governance and risk management policies. The increasing profitability of business will help in promoting social performance by producing maximizing profits for the communities (Carbo, 2017).

KPI’s (Key Performance Indicator) can be regarded as quantifiable measures that are used for evaluating the success of a business organization. The non-profit organizations such as Age UK places emphasize on measuring revenue and donation metrics while developing the KPI’s. The KPI’s of Age UK are identified and analyzed as follows:

• Growth rate of Donor: The rate of growth of donor as a KPI of the NGO to gain an analysis of the funds donated by the donors to the organization. The financial reports of the NGO provide a measurement of the donation rate by comparing the present year donation figure with that of the previous year. This will help in developing an analysis of the trust and confidence developed by the NGO among the society.
• Returns Realized from Raising Funds: Measuring ROI (Return on Investment) of all the resources that are used in raising funds is also an effective KPI of the NGO. It involves taking into account the time incurred on raising funds, developing mission and marketing strategies for gaining charities. The greater the ROI the larger is the charity realized by the NGO for promoting social welfare.
• Rate of Volunteer: The KPI helps in measuring the number of volunteers the NGO has used for raising funds. Volunteers play an important role in promoting the growth and development of the NGO by ensuring that its services are effectively implemented (Annual Report, 2017).
• Outreach and Advocacy: This KPI helps in providing a measurement of the community events that are organized by the NGO. Also, it provides a measurement of the training providing to the advocates and the attendance rates of people within the community events organized by NGO.
• Risk Management & Governance: The proper implementation of the risk management and governance system is necessary for the continuing growth and development of a NGO. It can be measured by assessing the programs used for mitigation of the emergency conditions and effectiveness of the governance policies so that all the internal activities are carried out in an efficient manner and the charity realized is used for societal welfare (Epstein and Yuthas, 2017).

Conclusion

The report has concluded that Age UK financial performance is adequate and it is able to effectively raise funds for promoting the growth and development of old age people as indicated from the results of different ratio’s. Also, its non-financial performance has indicated that the non-profit organization has developed effective KPI’s for gaining an analysis of its social performance.

References

About AGE UK. 2018. [Online]. Available at: https://www.ageuk.org.uk/about-us/what-we-do/ [Accessed on: 14 August 2018].

Annual Report 2017. AGE UK. [Online]. Available at: https://www.ageuk.org.uk/globalassets/age-uk/documents/annual-reports-and-reviews/report_of_trustees_and_annual_accounts_2016_2017.pdf [Accessed on: 14 August 2018].

Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage Learning.

Carbo, J. 2017. Social Sustainability for Business. Routledge.

Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.

Epstein, M. and Yuthas, K. 2017. Measuring and Improving Social Impacts: A Guide for Nonprofits, Companies and Impact Investors. Routledge.

Keating, E.K. and Frumkin, P. 2008. How to Assess Nonprofit Financial Performance. [Online]. Available at: https://nasaa-arts.org/wp-content/uploads/2017/03/Reading-5-Understanding-Financial-Statements.pdf [Accessed on: 14 August 2018].

Sharma. P. 2012. Performance Measurement in NGOs. [Online]. Available at: https://browneandmohan.files.wordpress.com/2012/12/pratibha-sharma-journal.pdf [Accessed on: 14 August 2018].

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