Environmental Defense

Financial Analysis

Environment Defense, a leading environmental advocacy group, is classified as a nongovernmental not for profit organization. Operating as a not for profit agency, the main purpose of the organization is not profit, but to help with the cause for which the organization was formed. Since NPO's do not operate like for profit businesses, NPO's require different measurement standards. At a minimum, a not for profit organization (NPO) must break-even or generate surpluses over time in order to remain financially viable. Appendix (Total revenue vs. operating expenses chart 1) shows that Environmental defense has had enough program revenues to cover its expenses every year except 1996, where their expenses exceeded revenues by seventy three dollars, which was made up for in the next operating year. For a NPO, net income is the total change in unrestricted net assets. Appendix (Total change in unrestricted net assets chart 2) shows Environmental Defense's "net income" since 1985. Based on this chart, Environmental Defense is a viable organization.

The best way to evaluate a NPO's performance is to answer the question: Did the institution live within its means for the year being measured? Significant operating losses can impair the ability of the organization to continue operations. The net income ratio best measures how well the organization lived within its means for the year. Appendix (net income ratio chart 3) shows Environmental Defense's net income ratio over the past decade. Judging from these ratios, Environmental Defense does an adequate job operating within its means during a given operating cycle. The larger the surplus of profit, the stronger the organization's financial position is. Environmental Defense's net income ratio has fallen 5.33% since 1999. This dramatic of a drop usually indicates financial problems. During 2000 and 2001, Environmental Defense demonstrated strong growth of 24.45% and 9.45% respectively (Appendix Growth Analysis Chart 4). In 2002 they only experienced a 2.35% growth, a much smaller growth percentage than in previous years. The reason for the drop in the income ratio is because their expenses continued to grow un-proportionally to their revenue growth. Their total operating expenses grew 6.46% (Appendix Total Operating Expenses Growth Analysis Chart 5) compared to their 2.35% growth in support and revenues.