Months of Liquid Unrestricted Net Assets (LUNA) — get_liquid_assets

Number of months an organization can operate using its liquid unrestricted net assets.

Formula:

luna = liquid_unrestricted_net_assets / monthly_expenses

liquid_unrestricted_net_assets = unrestricted_net_assets
                                 - ( net_fixed_assets - mortgages_payable )
monthly_expenses = total_expenses / 12

Definitional Range

Unbounded in both directions, expressed in months. Negative values indicate that fixed property (net of mortgage debt) exceeds unrestricted net assets. The practical range for operating nonprofits is approximately [-12, 36] months.

Benchmarks and rules of thumb

Same general benchmarks as get_operating_reserve_ratio(): 3-6 months is considered adequate for most operating nonprofits.
Negative LUNA values are particularly informative: they indicate unrestricted equity is entirely absorbed by illiquid fixed assets.

Calculated For: 990 + 990EZ filers.

Usage

get_liquid_assets_months( df,
  unrestricted_net_assets = "F9_10_NAFB_UNRESTRICT_EOY",
  net_fixed_assets        = "F9_10_ASSET_LAND_BLDG_NET_EOY",
  mortgages_payable       = "F9_10_LIAB_MTG_NOTE_EOY",
  total_expenses          = "F9_09_EXP_TOT_TOT",
  winsorize = 0.98 ,
  range     = "np",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df: A data.frame containing the fields required for computing the metric.
unrestricted_net_assets: Unrestricted net assets, EOY.
net_fixed_assets: Net land, buildings, and equipment, EOY.
mortgages_payable: Mortgages and notes payable, EOY.
total_expenses: Total functional expenses.
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:

- `liquid_assets_months`   - months of liquid unrestricted net assets (raw)
- `liquid_assets_months_w` - winsorized version
- `liquid_assets_months_z` - standardized z-score (based on winsorized values)
- `liquid_assets_months_p` - percentile rank (1-100)

Details

Primary uses and key insights

Liquid unrestricted net assets (LUNA) measures how many months of operating expenses are covered by unrestricted net assets that are not tied up in illiquid fixed property (net of associated mortgage debt). It is a refinement of the operating reserve ratio (get_operating_reserve_ratio()) that more precisely isolates liquid resources by netting out the value of fixed assets but adding back the portion financed by mortgage debt (since that debt reduces the net equity encumbrance of the fixed asset).

Formula variations and their sources

(Unrestricted net assets - net fixed assets + mortgages payable) / (total expenses / 12). The addition of mortgage debt back into the numerator reflects the logic that if the organization sold its building, it would receive the net proceeds (market value minus mortgage balance) - and the mortgage liability already reduces unrestricted net assets. Adding it back avoids double-counting the encumbrance.

This formulation follows Zietlow et al. (2007) and is cited by Calabrese (2013). It differs from get_operating_reserve_ratio() only in the addition of mortgages_payable to the numerator.

Canonical citations

Zietlow, J., Hankin, J.A. & Seidner, A. (2007). Financial Management for Nonprofit Organizations. Wiley. - Primary source for the LUNA definition.
Calabrese, T.D. (2013). Running on empty. Nonprofit Management and Leadership, 23(3), 281-302. - Empirical application and validation.

Variables used:

F9_10_NAFB_UNRESTRICT_EOY: Unrestricted net assets, EOY (unrestricted_net_assets)
F9_10_ASSET_LAND_BLDG_NET_EOY: Net land, buildings, and equipment (net_fixed_assets)
F9_10_LIAB_MTG_NOTE_EOY: Mortgages and notes payable (mortgages_payable)
F9_09_EXP_TOT_TOT: Total functional expenses (total_expenses)

Examples

library( fiscal )
data( dat10k )

d <- get_liquid_assets_months( df = dat10k )
#>    :: Total expenses equal to zero :: 77 case(s) replaced with NaN
head( d[ , c( "liquid_assets_months", "liquid_assets_months_w", "liquid_assets_months_z", "liquid_assets_months_p" ) ] )
#>    liquid_assets_months liquid_assets_months_w liquid_assets_months_z
#>                   <num>                  <num>                  <num>
#> 1:                   NA                     NA                     NA
#> 2:              0.00000                0.00000             -0.4715260
#> 3:             11.14455               11.14455              0.5380302
#> 4:                   NA                     NA                     NA
#> 5:            -13.93552              -13.93552             -1.5529579
#> 6:                   NA                     NA                     NA
#>    liquid_assets_months_p
#>                     <int>
#> 1:                     NA
#> 2:                     20
#> 3:                     70
#> 4:                     NA
#> 5:                      8
#> 6:                     NA