ABF stands for army benevolent fund. It is a national charity for the army in Britain. It provides help in form of charity to people in Britain who are serving or have ever served in the army, or their dependants. The help is in the form of pensions, grants, or even loans. The organization has professional advisers who provide financial advice to the organization. It also has trustees and officers such as chief executive and directors who help in running and managing the organizations goals.
Financial ratios are used investment decision making. A firm with attractive records attracts investors and creditors as opposed to an organization whose records are poor. The ABF charity is an organization that mobilizes funds from the military personnel to invest in others sectors. As such, good records are important to attract donations and more members. As such, the organization will expand its coverage hence more business.
Current ration= current assets / current liabilities
Current ration measure the liquidity of the organization. It shows the extent in which the firm is able to meet is financial dues. A higher current ratio indicates that the organization is credit worthy hence the investors can take their funds towards it. The shareholders will however be interested in a low current ratio to ensure that much of the business assets are working. The ABF current ratio is low hence will attract more shareholders than investors.
Returns on assets
Return on assets= net income/total assets
Return on assets ratio measure how effective the resources of the organization are used to generate business. A high return on assets ratio indicates better mobilization of resources. The AFBF charity return on assets ratio is 0.2 thus the management has not utilized all the resources optimally.
Quick ratio= Current assets –inventory/ current liabilities
This ratio is another measure of liquidity. The ration does not factor in the inventory of the business. It only shows how the form is able to meet dues it owes to creditors. A liquidity ratio of 1 means that the organization is well positioned to meet the debt owed to creditors. As such, the ABF charity is lucrative place to invest in.
Inputs, outputs and outcomes are crucial in any organization, project or business. The charity has various inputs. Inputs are resources that you put into a project or an activity. Normally, expenditure budgets are used to quantify inputs. It is therefore easy to measure inputs and determine their values. The inputs for the charity include the time put in by the staff, interest from the loans it offers to beneficiaries and members, premises used financial support from well wishers in the form of donations and grants. The charity uses these inputs to finance its activities and projects so as to achieve its objectives.
Outputs are tangible results from an activity. It is fairly easy to measure outputs. The outputs of the charity include time used in training counselors for the army, grants or loans offered to army members or beneficiaries and also the financial investments made by the charity. These outputs are the major concerns of the charity. After a short period the effects of the outputs are seen in form of outcomes which might be long lasting and widespread.
The effect of outputs on the environment and the beneficiaries is called outcomes. Outcomes are more subjective hence difficult to measure. As a result of training counselors, the welfare of army members will improve since those counseled will eventually be counseling other army members. The army member’s will obtain information such as how to save, prudent use of their salaries, how to protect themselves from sexually transmitted infections such as HIV/AIDS, healthy life style and also how to relate with one another
. All these have a long-term impact on the army members. The charity offers grants and loans to beneficiaries. The loans and grants can be invested by the beneficiaries. The investment may yield profits to the beneficiary or member. This will eventually lead to improvement of the financial position of the beneficiaries and army members. The charity also does some investments. The investments might yield profits which can be used to improve the financial position of the charity and improve its service delivery to its members. This eventually leads to a general improvement of the economy. These methods are the most appropriate for ABF since it is a nonprofit making organization.
The charity may measure its performance by various methods. First, it may compare its current performance with the targeted performance and establish if there are any deviations. If deviations are found, the corrective action is immediately taken. For instance, if the charity’s target was to provide 800 dollars to retired officers but after the set period it realizes that only 560 dollars were provided, it will take an initiative to determine what caused the deviation. If the cause is identified, correction is done. Secondly, financial statements such as income and expenditure accounts, statement of affairs and the balance sheet can be analyzed to determine whether the charity is performing poorly or good.
The methods used to measure financial performance uses statistical data to model the results. Some parameters are not measurable directly but are estimated by observation. This therefore causes the methods to provide a wrong assessment of the financial position. If the information obtained is relied upon when decisions are made, a wrong a decision may be made. Since the sources of income and funding for charities are limited, the available resources must be used prudently.
Charity organization such as ABF can formulate and implement a performance plan. This plan can be used to measure the financial stability of the charity at various points in time. It can also on assess the extent to which it has been providing grants and loans to members and beneficiaries. This is relevant so as to monitor the progress of ABF. Monitoring the performance will help in ensuring quality management. Quality will be assured, improved, controlled and well planned. The chances of expansion for ABF will be high since all its activities are clearly monitored.
Grants is the financial aid given that is given or received and no refund is expected to be made against it. Charities give grants to its members and beneficiaries. The amounts of grants given to the individuals can be determined by comparing the incomes of a charity to its expenses. The grants can also be measured by keeping a continuous record of the grants given to each member and beneficiaries. When these are summed, the total grants given will be obtained. The rants may also be obtained directly from the financial records. The figure for grants can directly be computed from the records.
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