Financial Statements in Government: A Compliance and Liquidity Approach

Examples and demonstrations for chapter III of Financial Reporting in Government
By Dr. John Sacco , George Mason University
Revised Saturday, April 12, 1997

In this section a demonstration is given for an analysis of a particular government. This analysis uses some of the ratios discussed in the section on Using the Financial Statements .

Revenue Stability

This particular government has the following revenue sources in its general fund.

  Source         amount     percent
  taxes     125,328,307       86.88%
  intergovt  12,433,346        8.62%
  earnings    6,493,040        4.50%
  fines         927,480        0.64%

  total     144,254,693      100.00%

Using traditional criteria, this government shows a good deal of revenue stability -- it does not rely on sources that can vary as a result of outside influences. In particular, intergovernmental revenue is not especially high, although it does constitute over 8%. However, with more concern about high taxes, this government might look to the prospects of diversifying its sources of money.

  Fund balance buffer
  beginning        6.84%
  end              3.97%

A ratio that is sometimes used in tandem with revenue stability is fund balance buffer. This is the ratio of fund balance to total revenue. Since this government does rely heavily on outside sources, it may not need a large buffer. Thus, even though the fund balance buffer ratio has fallen considerably, the fall might not be a matter of serious concern unless the community is having problem maintaining such a heavy reliance on taxes.

Total Expenditures and Transfer per Capita -- General Fund

  expenditures           74,118,916
  transfers              77,821,596
  total                 151,940,512
  population                 86,129
  spending/capita            $1,764

In this community, money from the general fund comes to $1,764 per capita. This figure could be given alone, compared with similar communities or show on a trend basis. Even shown alone it be helpful to citizen since they know how much they spend on good and services for themselves. For instance, might be two months mortgage payments of four months of car payments.

Short Term Solvency or Liquidity

  Short term assets
  cash                      1542635
  short term investments     344546
  receivables               8853883
  due from other govt       1942134

  Total                    12683198

  Short term liabilities
  accounts payable           865563
  retainage payable           16472
  accrued payroll           1273769
  other liabilities          132941

  Total                     2288745

  quick ratio                  5.54

Ordinarily, a 2 to 1 ratio is considered good and in fact ratios too much higher than that are sometimes questioned as being too high. In this case, deeper investigation might be made into receivables. For example, has the government candidly examined how much of these receivable will not be collected?

  Debt burden

  general obligation debt            74,185,000
  deferred compensation               4,000,191
  capital leases                     17,375,172
  claims                              4,535,816
  total                             100,096,179

  population                              86129
  general fund revenue                146211537

  debt per capita                        $1,162
  debt compared to revenue                68.46%

Total debt in this case is getting close to the $1,200 per capital sometimes given as a danger point. Also note that total revenue from the general fund makes up 68% of total debt. This community may be pushing its limits on debt.

See Also: homework , project elements , course readings , the glossary , stories , and a summary