Financial Condition Analysis Project – Due Thursday, December 15
th before 11:59pm
The superintendent for the school district is now preparing the management discussion and
analysis (MD&A) to go with the basic financial statements (BFS) before publishing its
Comprehensive Annual Financial Report (CAFR). She has asked you to put together some
information that will aid in that preparation. Please upload your completed assignment on
Sakai with your writeup of the results. Your writeup should follow a similar format as the
example from class.
First, start by reviewing the school district’s BFS, including its Statement of Net Position and
Statement of Activities (attached on Sakai).
Second, answer the following questions. Remember to interpret each ratio.
1. Cash solvency refers to the ability of the government to generate enough cash in the shortterm to meet its current liabilities.
A. Calculate and interpret the current ratio and days of cash on hand for both FY 2019
and FY 2021.
B. Explain what each ratio suggests about the condition of the district’s cash solvency.
How has each ratio changed from FY 2019 to FY 2021?
2. Long-run solvency refers to the ability of a government to generate revenues sufficient to
meet all regular operating costs as well as unusual costs that occur in specific years. These
unusual costs might include payments for capital asset replacement and acquisition and
pension obligations. Consider how the following questions help assess the long-run solvency of
the city?
A. Calculate and interpret the debt burden and debt service burden for both FY 2019
and FY 2021.
B. Explain what each ratio suggests about the condition of the district’s long-term
solvency. How has each ratio changed from FY 2019 to FY 2021?
3. Few governments have money to waste. Therefore, these organizations want to operate
efficient. For example, a local government should try to be timely in collecting its accounts
receivable. Determine the level of efficiency of the government by calculating the following two
ratios.
2
A. Calculate and interpret the receivables turnover and average collection period for
both FY 2019 and FY 2021.
B. Explain what each ratio suggests about the condition of the district’s efficiency. How
has each ratio changed from FY 2019 to FY 2021?
4. Another important factor is financial risk. We should assess the extent to which the
government relies on steady, dependable resources. This provides us with a measure of the
government’s capacity to increase resources if some expected revenue source falls short (e.g.
investment income and intergovernmental revenue). Consider how the following questions
help assess the financial risk of the government?
A. Calculate and interpret the risk exposure factor and tax leverage factor for both FY
2019 and FY 2021.
B. Explain what each ratio suggests about the condition of the district’s financial risk.
How has each ratio changed from FY 2019 to FY 2021?
5. Using your answers from question 1 through 4, what are the major strengths and
vulnerabilities for the school district? Has the financial condition of the school district improved
over time (FY 2019 to FY 2021)? Why or why not?
