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Debt to Net Assets Ratio

Source: R/get-debt-netassets-ratio.R
get_debt_netassets_ratio.Rd

Compares total liabilities to total net assets.

Formula:

dnar = total_liabilities / total_net_assets

Definitional Range

Bounded below at zero when total net assets are positive; unbounded above as net assets approach zero. Negative values occur when total net assets are negative (liabilities exceed assets), an insolvency signal, so the ratio is not monotone in financial health across zero. The ratio is undefined (NaN) when total net assets equal zero.

Benchmarks and rules of thumb

  • Values below 1.0 mean liabilities are smaller than the net asset base.

  • Values above 3.0-5.0 are commonly flagged as high leverage in the nonprofit vulnerability literature.

  • Always read alongside get_debt_equity_ratio(), which uses only unrestricted net assets: a large gap between the two means much of the equity cushion is donor restricted.

Calculated For: 990 + 990EZ filers.

Usage

get_debt_netassets_ratio( df,
  liabilities = c( "F9_10_LIAB_TOT_EOY", "F9_01_NAFB_LIAB_TOT_EOY" ),
  net_assets  = c( "F9_10_NAFB_TOT_EOY", "F9_01_NAFB_TOT_EOY" ),
  winsorize = 0.98 ,
  range     = "np",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df

A data.frame containing the fields required for computing the metric.

liabilities

Total liabilities, EOY. Accepts one or two column names; if two are provided they are coalesced with the first taking priority.

net_assets

Total net assets, EOY. Accepts one or two column names; if two are provided they are coalesced with the first taking priority.

winsorize

The winsorization value (between 0 and 1), defaults to 0.98, which winsorizes at the 1st and 99th percentiles.

range

Character string specifying the theoretical range of the ratio, used to set winsorization bounds. Default "np". Options: "np" (negative to positive), "zp" (zero to positive), "zo" (zero to one), "nz" (negative to zero), or a custom "lo;hi" pair (e.g. "0;10").

sanitize

Logical (default TRUE). If TRUE, NA values in the financial input columns are imputed to zero before the ratio is computed, respecting form scope: Part X and VIII/IX fields (990 only) are imputed only for 990 filers; Part I summary fields (990 + 990EZ) are imputed for all filers. The returned dataframe always contains the original unmodified input columns.

summarize

Logical. If TRUE, prints a summary() of the results and plots density curves for all four output columns (raw, winsorized, z-score, percentile). Defaults to FALSE.

Value

Object of class data.frame: the original dataframe appended with four new columns:

- `debt_netassets`   - debt to net assets ratio (raw)
- `debt_netassets_w` - winsorized version
- `debt_netassets_z` - standardized z-score (based on winsorized values)
- `debt_netassets_p` - percentile rank (1-100)

Details

Primary uses and key insights

The debt to net assets ratio compares total obligations with the organization's entire equity base, restricted and unrestricted. It is the nonprofit analogue of the commercial debt-to-equity ratio. Because total net assets are reported on both the Form 990 (Part X line 33) and the 990-EZ (Part II line 27), this ratio is available for both filer types.

Formula variations and their sources

Total liabilities (Part X line 26) / total net assets (Part X line 33). A stricter variant, get_debt_equity_ratio(), divides by unrestricted net assets only, on the argument that donor-restricted resources cannot be used to meet general obligations. The two ratios are identical for organizations with no restricted net assets. Earlier versions of this function used unrestricted net assets, which made it a duplicate of get_debt_equity_ratio().

Canonical citations

  • Tuckman, H.P. & Chang, C.F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445-460.

Variables used:

  • F9_10_LIAB_TOT_EOY: Total liabilities, EOY (Part X line 26; 990-EZ Part II line 26) (liabilities)

  • F9_01_NAFB_LIAB_TOT_EOY: Total liabilities from Part I line 21 (liabilities, fallback)

  • F9_10_NAFB_TOT_EOY: Total net assets, EOY (Part X line 33; 990-EZ Part II line 27) (net_assets)

  • F9_01_NAFB_TOT_EOY: Net assets from Part I line 22 (net_assets, fallback)

Examples

library( fiscal )
data( dat10k )

d <- get_debt_netassets_ratio( df = dat10k )
#>    :: Net assets equal to zero :: 335 case(s) replaced with NaN
head( d[ , c( "debt_netassets", "debt_netassets_w", "debt_netassets_z", "debt_netassets_p" ) ] )
#>   debt_netassets debt_netassets_w debt_netassets_z debt_netassets_p
#> 1      0.1131798        0.1131798         1.264081               77
#> 2      0.0000000        0.0000000         0.000000                6
#> 3      0.0000000        0.0000000         0.000000                6
#> 4      0.1295450        0.1295450         1.295440               78
#> 5            NaN              NaN               NA               NA
#> 6      0.2364865        0.2364865         1.453831               83