Using financial ratio analysis regularly can assist your Board or Committee of Management to monitor the financial health of your sporting organisation.
The Office of Sport has developed the Financial Ratio Health Check Tool.
The aim of the tool is to help your sporting organisation to better understand if it is meeting its financial performance expectations.
Using the tool on regular basis together with other performance strategies will help build a picture of overall financial performance and what steps your organisation should take towards continual financial improvement and sustainability.
Before completing the tool
The five financial ratios assessed within the Tool are:
- Net income ratio – surplus divided by net revenue. Measures the level of surplus generated from each dollar of revenue received.
- Current ratio – liquidity-based ratio which measures the sporting organisation’s ability to meet short term debts measured by dividing current assets by current liabilities.
- Debt to Assets ratio – indicator of financial leverage which indicates how much the sporting organisation has financed its assets with debt.
- Revenue stream percentage ratio – indicates how much a particular stream of revenue is contributing to total revenue. This is often beneficial in assessing the performance of a given strategic initiative, or in aiding discussions around where resources may need to be better focused.
- Cash expenditure cover ratio – indicates the level of cash available to cover expenditure – and highlights how long a sporting organisation can continue to operate before more cash is needed.
Key points to consider about ratio’s and the Tool:
- Financial ratios are to be taken as a general indicator of some aspects of financial health.
- The ratios used in the tool were identified through the Organisational Health Research Project undertaken by the Office of Sport and form a good base for ratio reporting.
- Not all sports will use the same ratios and there are no right answers when it comes to the number of financial ratios your organisation may wish to use. As a guide, focus on those that will best drive meaningful decisions in your sport. Sources are provided at the end of this section where more information can be found about financial ratios.
- Boards or Committees of Management of sporting organisations have a legal duty to ensure the organisation can meet its debts “as and when they fall due" and the financial statements and reports should be carefully considered (in full) each month.
- All ratios are historical indicators of performance. Past performance is not always an indicator of future performance.
- Effective use of ratios in the Tool are dependent on the sporting organisation correctly classifying its assets and liabilities within the balance sheet (e.g. current vs non-current).
- Always consider seeking independent financial advice about your results when using the ratio’s in the Tool. There are a range of factors to consider which impact on financial performance.
- You can use the Tool as many times as you like
The Office of Sport will see the overall results from each use of the Tool but we do not ask for information that will identify your organisation such as organisation name or contact details.
Using the Tool
- To complete the Financial Ratio Health Check Tool, you will need your organisation's financial reports from the current and previous financial year.
- It should take between 30-45 minutes to complete.
- Each ratio question has a ‘?’ symbol that can be clicked on for more information about the question.
- For each answer, an instant feedback dynamic response box will appear, providing feedback and advice based on your answer.
- When you have completed the Tool you will be able to print your results or have your results emailed to you.
- If you have any questions about your results, consider seeking independent financial advice and/or contact your state or national affiliate body
Financial ratio analysis is a common method of analysing the financial health of an organisation and predicting the organisation’s potential for success or failure and its progress. There are many financial ratios you can use to assess the financial health of your organisation.
Some of the links below may be of some assistance:
Australian Institute of Company Directors
Australian Securities and Investment Commission
Australian Taxation Office
Charities and NFP Commission
Clearinghouse for sport
Club Help – Financial Management
Governance Institute of Australia
NSW Fair Trading
Our Community – Community Financial Centre
The use of this Tool does not constitute legal or financial advice and is general in nature. It should not be acted upon without the full understanding of your current situation and future goals and objectives by a fully qualified professional financial or legal advisor. The Office of Sport accepts no liability or responsibility for the accuracy and suitability of any information generated or your reliance upon it.