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Not-for-profit organizations aim to perform on break-even rate in the long run. However, from year to year, the organizations may have various fluctuations – sometimes they operate at a deficit in order to reduce the surplus or maintain some special program, sometimes they perform with a surplus in order to have adequate funding for expansion, subsidize some programs or to renovate the assets. Therefore, ideally, the total revenues from the operations should equal the total expenses. In order to maintain such equality, the organization should develop an effective business model that works efficiently in ever changing environment.

The first and foremost, the effectiveness of entity’s business model depends on the sources of revenues. It is extremely important that the revenue base should be diversified in order to reduce the risk. Overdependence on the one revenue source (grants, program services, rents, tuitions etc) may lead to serious problems. Therefore, not-for-profit organization should diversify its revenue’s base and try to enlist as many sources as possible. This paper seeks to give an analysis to financial performance of four not-for-profit organizations that specialize on similar activities. The four organizations are Peppermint Ridge, Angel View, Orange County Adult Achievement Center (OCAAC) and New Horizons. All of them provide rehabilitation services for people with developmental disabilities (autism, Down syndrome, epilepsy, cerebral palsy and other disabilities). In spite of the similar types of service they provide, four organizations use distinct approaches to financial maintenance. This essay will compare the effectiveness of NPO’s financial activity and explain the potential drawbacks in their financial operations.

Section 1

According to the annual business reports of four listed organizations, the residential revenue is not enough to cover their expenses. Therefore, NPO’s use other sources of revenue to raise funds in order to keep the ends meet. For instance, Peppermint Ridge earns 93% of its revenues through residential and client services and 7% through charitable contributions. Contrary to Peppermint Ridge, Angel View gets 32.9% of its revenues from residential activities, New Horizons – 73.9% and OCAAC – 87.5% (see Table 4 in Appendix 1). Besides, the last three companies have revenues not only from the charitable contributions, but also from other operations, such as food services (New Horizons), contract income (OCAAC) or Thriftmarts (Angel View). It is essential to understand that the business model of Peppermint Ridge is far from effective. The company is overdependent on residential revenue, which is not enough to guarantee the financial stability. In case the income from Program Service Fees decreases, Peppermint Ridge will not be able to break-even because it does not have additional sources of funding.

In order to analyze the financial position of the organization, it is crucial to evaluate profitability. For NPOs, high profitability means the possibilities to expand, enter new areas and balance their unstable financial position. One of the profitability indicators is the profit margin.

According to the table, the highest rates of Angel View and OCAAC show the high profit margin. This means they have sources to grow next year. Contrary to them, Peppermint Ridge has low profit margin that may well be a sign of a broken business model. The diagram of Angel View’s revenues confirms the most effective model that has well diversified revenue base.

Another profitability measure is operating margin that shows how well organization performs without external contributions. The analysis of operating margin of four NPO’s highlights again that Peppermint rich is the least profitable organization with operating margin of -7,48%, whereas the OCAAC is the most profitable based on internal sources of income showing the positive operating margin.

The overall analysis of revenue sources and profitability of four companies tells that Peppermint Ridge has inefficient business model. The similar organizations (Angel View, New Horizons and OCAAC) implement additional services that diversify their revenue base and make their activities more profitable. Higher profitability, in its turn, equips NPOs with future possibilities for growth and development.

Section 2

Not-for-profit organizations rely heavily on charitable sources of revenues. As it was discussed earlier, charitable foundation accounts for the substantial part of revenue (see the appendix 1) constituting from 2% to 12%. Therefore, the question of sources of charitable revenues is of outmost importance. According to a 2010 Nonprofit Foundation Survey (The Nonprofit Research Collaborative 2011), only 45% of organizations received more than 50% of their contributions from individual donors. The analysis of Peppermint Ridge, Angel View, Orange County Adult Achievement Center and New Horizons highlights that individual contributions play a crucial role in charitable revenues. It is important to mention that Angel View was not effective in raising individual contributions, which account only for 15% of its charitable revenue. On contrast, three other companies were successful in attracting individual donors who contributed substantial amounts of their charitable revenues. Peppermint Ridge was the most efficient and received nearly 90% of its charitable revenue from individual donations. $446,494 of individual contributions attribute to 6.69% of the total revenue of the firm which is more than 4.1% of New Horizons, 1.8% of Angel View and 1.3% of OCAAC. In the annual report, Peppermint Ridge names all its donors and thanks to them for giving a unique opportunity to maintain and renovate facilities for clients, purchase riders and riding helmets and perform day-to-day operations. 

Another important constituent of revenue is a fundraising. According to financial statements, only New Horizons and Peppermint Ridge managed to raise funds in spite of the fact that all of them reported fundraising expenses. New Horizons showed high fundraising performance by gaining 2% of total revenues from fundraising. They organized numerous events, including Walk on the Horizons where they managed to raise $50,000, “Fulfilling Dreams” Gala Celebration that raised over $150,000 and New Horizons’ Golf Classic that raised $62,000. Peppermint Ridge mentions only one fundraising event in its annual report – 6th annual Love Walk that raised $44,700 (including in-kind support). Therefore, their fundraising revenue constitutes only 0.63% of the total amount of revenues. In fact, Peppermint Ridge may implement the same practice as New Horizons does aiming to organize various social events that help raise funds. However, on the other hand, organization of various fundraising events requires additional expenses. So, the organization should perform careful analysis whether it is efficient to allocate expenses on social events. For instance, Peppermint Ridge’s fundraising expense accounts for 1.54% of total organizational expenses, whereas New Horizons’ fundraising expense constitutes 4.6% of total expenses. Therefore, sometimes it makes sense calculating fundraising efficiency of the organization. There are many formulas for the evaluating the fundraising efficiency. The Table 3 uses the simplest approach to assess fundraising efficiency – the contributed income is divided by fundraising costs. The result explains the average dollar amount of contributions raised from each dollar spent on fundraising. Now, we can conclude that New Horizons raised $1,34 for each dollar spent on fundraising. Angel View also shows low fundraising efficiency ratio, whereas Peppermint Ridge is more successful with the ratio of 4,75. The leader here is OCAAC that raised $10,39 for every spent dollar on fundraising. The formula understands fundraising efficiency as a general indicator that looks at all sources of privately contributed income, including individual contributions and grants, United Way and bequests. 

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Angel View has a high dependence on its business revenues that come from Resale Stores and Boutiques where they sell quality shoes, family apparel, jewelry, books, accessories, household goods and more. Moreover, in their full-line stores they earn on selling furniture, appliances and electronics. Section 3. In order to diversify the revenue base and get additional sources to break-even and maintain further development three of four analyzed NPOs use business operations.

New Horizons earns money through providing the food services. They have a Banquet Hall called Sam’s café where customers can arrange business meetings, marriage ceremonies, parties, seminars and other small and large events. The café serves not only as a way to earn income, but also as an employment opportunity for disabled people. In addition, New Horizons have on-site 20,000 square-foot industrial Workshop. The clients of New Horizons learn work skills and earn money at the same time. They perform a product assembly, packaging and fulfillment services. New Horizons reports net revenues of $2,374,676 that is 19% of their total revenue.

OCAAC reports contract income that amounts $999,735. A part of this revenue comes from the warehouse. OCAAC has Work Activity Program where clients have a chance to work at packaging and assembly department.Their business operations account for 10% of total revenues.

It is also important to evaluate the reliance on sources of income. Angel view has 55% reliance on business income. New Horizons has 74%, and OCAAC has 88% reliance upon residential revenues. Peppermint Ridge has the highest rate of reliance on residential income that reaches 93%. In the situation of high reliability on one source, the organization is exposed to high risk of losing or declining source of revenue.

Conclusions

This paper gives a comparative analysis of sources of revenues of four not-for-profit organizations - Peppermint Ridge, Angel View, Orange County Adult Achievement Center and New Horizons. The similar feature for all organizations is that they are not able to cover their expenses solely by residential services revenues. Therefore, they need to use other sources to finance the gap. A common source of income for all organizations is charitable donations that include fundraising activities, individual contributions and grants, bequests, United Way and interest gains (or losses). Besides, all NPOs, except for Peppermint Ridge, gain revenues through other services, specifically business operations at warehouses, food services etc. The diversification of the revenue base gives chances to mitigate the risk associated with a decrease in revenues from the most relied on source. Evidently, New Horizon the most diversified revenue sources, whereas the Angel View is the least dependent on residential revenues. Peppermint Ridge has the poorest position as it depends mostly on residential revenues; nonetheless, it performs well in attracting individual contributions. The high reliance on one revenue source makes the performance unprofitable. Although the aim if NPO is not earning income, it should break even or have a little surplus to finance the development.

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