hristina mikic - instructions for the analysis of cultural organizations

8/13/2019 Hristina Mikic - Instructions for the Analysis of Cultural Organizations

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Instruction for preparation analysis of income resources of cultural insti(THIS INSTRUCTION CONSIST OF EXAME PARTS)

Expenses statement - Summary

Item Amount2005

% oftotal

expenses

Amount2006

% oftotal

expenses2

Personal expenses (1+2) 25591 39%

1. Salary expenses 20591

2.Personal developmentexpenses

5000

Capital expenses (fixedassets)

5000 7,75%

1. Equipment 5000

2. Building -

Running expenses 14940

1. Operating expenses 9940

2. Marketing expenses 5000

Programme expenses 19000

TOTAL 64531

Comment:-Explain the structure of costs

-Compare structure of cost with other cultural organizations (or usual costs structure of culturainformation from: Statistical Year Book (comparison structure of cost with average cost structcost structure of institutions in the certain field), from Budget of the Ministry of culture (compaverage cost structure of all institution financed by Ministry of culture)-Explain how will be covered planned expenses



- Calculate annual cost per visitors; compare result with other institution or with average cost Serbia or in the certain filed….

Income statement

Resources of financing Amount(2005) % OFTOTAL Amount(2006) % OFTOTAL 2

The Ministry of culture 70000 79,5% 90000 83,3%

The Ministry of science 5000 5000

The Ministry of education 0 0

Sub total: Governmentcontributions 75000 75000

International funds and grants 0 0

Individual donations 0 0

International foundations 1000 1000

Corporate donations 0 0Sub total: Donated contributions 100 100

Sponsorships 5000 5000

Business supports 3000 3000

Sales (tickets, services, product saleetc) 4000 4000

Sub total: market contributions 12000 12000

TOTAL 88000 108000

Total expenses 64531 64531

Income gap /surplus (Gross profit) 23469 23469

Non taxable amount of profit (Serbia) 3 750 3 750Profit Tax 10% 1971 1971

Net profit 21498 21498

Comment:



-Identify trend line in revenue flows (e.g. grow in fundraising resources, reducing government financial performance for a few years.- Explain final financial result (income gap or surplus)- Explain the structure of different categories of financial resources over the analyzed time.



Calculate and compare some financial ratios and indicators

(You can choose all or some of listed financial ratios)

COMPARAISON:1. Financial indicators can be compare to different cultural activities/sectors oraverage (for comparison, you can use data from Statistical Year Book or otheravailable resources e.g. financial statement of some cultural organization)2. God way to compare financial indicators is by comparing current ratios withprevious ones (e.g. for two years)

I Financial ratios

1. Market Income ratio – measures market orientation of cultural organization

as well as trends in current financial policy.

Market Income ratio = (market income/ total income) x 100%

MARKET INCOME = sales income, sponsorships, business contribution

< 40- 50% - poor market orientation, domination of government resources= 50% – mixed financial resources> 40-50% – strong market orientation of cultural organization

COMMENT: After calculating market income ratio, you should explain reasonfor strong/poor market orientation and identify type of financial policy; if youhave information, you can make comparison of market contribution of othercultural organizations.

2.

RETURN ON TOTAL ASSETS. ROA is net income before income taxes divided bytotal assets. This figure shows the productivity of assets, or, in other words, howmuch income is earned for each dollar of asset. This ratio provided informationabout earning power of assets of cultural institution. This is very important ratiofor enterprises in creative industries.

RETURN ON TOTAL ASSETS = net income (profit) Total assets

Total assets – you will get information for balance sheetNet income – you will get information for income statement

3 . Sales income ratio measures earnings power of cultural organization

SALE INCOME RATIO = (sales revenue/total income) x 100%



Sales revenues = services, tickets, products, etc.

High sales income ratio indicates market penetration of cultural organizationsand management’s effectiveness in its use of sale potential.

Lower ratio indicates that management is not effective in market penetration orsome of market potentials are not exploited.

COMMENT: After calculating sale income ratio, you should explain reason forlow/high level of sale income ratio; if you have information, you can makecomparison with other cultural organizations. Describe possibility for marketpenetration or market potential that are not exploited.

4. Fundraising income ratio indicates cultural organization power forfundraising and cooperation with business sector or donators.

Fundraising income ratio = (fundraising resources (BS or DS or TOTAL) /total income) x 100%

Fundraising resources BS (business supports) = contribution by businesssupports (in kind contributions, corporate donations, sponsorships, etc.Fundraising resources DS (donated supports) = contribution by donators(without corporate donations) – individual donations, International funds andgrants, International foundations)Fundraising resources total = total fundraising contributions: contribution by

business support and contribution by donators.

If you have information, you can modify this ratio and analyze analytical itemsin DS and BS categories. For example: fundraising resources by internationalfoundations vs. total income….

CTH (business cost per hundred visitors) = business contribution forprogramme activities/ visitors of programme activities supported by businesssector

Costs per visitor indicate attractiveness and competitiveness of institutionprogrammes for business sector. General business rule is low cost of programmeand huge number of visitors.

COMMENT:- Explain main trends in fundraising income ratio;- Explain structure of sponsors and their contributions or donators and their

contributions;- Explain number and average sponsorship contributions (donated

contributions);

- Explain main elements of policy for attracting sponsors/business sector- Recommended some solutions for attracting business sector/ improving

fundraising practices etc….



5. Net profit ratio is often use to measures management’s effectiveness inachieving profitability

Net profit ratio = (Net profit / total income) x 100%

God way to compare net profit ratio is by comparing current ratio with previousone (if you have financial data for a few years) or by comparing current ratiowith average profitability ratio for cultural sector (theatres, museums, archive,gallery, visual arts etc)

6. SALES INCOME RATION PER AUDIENCE: measure efficiency of earning power of

cultural organization. This ration should be compare with the same indication on theexpenses side, to identify balance or misbalance between cost growth and marketgrowth.

EXPENCES RATIO per audience= running expenses + personal expenses

Number of audience

SALES INCOME RATIO per audience =audienceof number

incomesales

7. FUNDRISING MARKET INCOME PER AUDIENCE =audienceof number

resourcesg fundrai sin

This ration should be compare with the same indication on the expenses side, toidentify balance or misbalance between cost growth and fundraising growth.

EXPENCES RATIO per audience= running expenses + personal expensesNumber of audience

COMMENT: After calculating you should explain reason for low/high level of ratios;make comparison with other cultural organizations *use data of other student in thegroup or form different researches). Explain balance or misbalance between costgrowth and fundraising growth. What should be done in the future to solve problemsin the relation fundraising market income per audience and expenses ratio peraudience?

8. SUBSIDY RATIO: This ratio is a total organization ratio and measures thepercentage of the total organization which is subsidized relative to the amount ofrevenue it generates through sales. While the goal of some non-profit enterprises is tobe totally self-sufficient, the goal of others is simply to diversify their revenue base. Thelower the percentage, the more fully independent a given non-profit organization is incovering all its costs (both business and programme of operations.

SUBSIDY RATIO = subsidy incomeTotal income

Comment:Compare current ratio with previous one (if you have financial data for a few years) or

by comparing current ratio with average for cultural sector (theatres, museums,archive, gallery, visual arts etc)



II Financial sustainability

Evaluation of financial sustainability can be made throughout three indicators:Efficiency Index, Self-Sustainability Index (I level) and Self-Sustainability Index(II level). The financial sustainability can be explored by three key dimensions:

Efficiency Inde x – indicates about financial vitality;

Efficiency Index = total revenue/ total costs

Optimal value 1

COMMENT: see financial analysis of Central institute for conservation

Self-Sustainability Index (I level) - measuring changes, progress and

identifying trend lines in financial performances;Self-Sustainability Index I = market resources/total expenses

Compare result with the average self-sustainability index I of other culturalinstitutions or organizations with the same programme activities or in the samecultural field (e.g. museums, theatres, gallery etc.).

Comment: Better or worst then average self-sustainability index


Self-Sustainability Index (II level) – indicates about operative financialperformances.

Self-Sustainability Index II = market resources/running and programmeexpenses

Compare result with the average self-sustainability index II of other culturalinstitutions or organizations with the same programme activities or in the samecultural field (e.g. museums, theatres, gallery etc.).


hristina mikic - instructions for the analysis of cultural organizations

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