Months of Operating Cash on Hand — get_months_cash

Number of months the organization can operate using available liquid assets.

Formula:

moch = liquid_assets / monthly_expenses

liquid_assets    = cash + savings + pledges_receivable + accounts_receivable
monthly_expenses = ( total_expenses - depreciation ) / 12

Definitional Range

Bounded below at zero; unbounded above. The typical operating range for nonprofits is approximately [0, 24] months, with values above 12 months uncommon for operating organizations (more typical for foundations).

Benchmarks and rules of thumb

Less than 1 month: Acute liquidity risk.
1-3 months: Below adequate; common guidance is at least 3 months.
3-6 months: Generally considered healthy for most operating nonprofits.
6+ months: Strong reserve position.
The Nonprofit Finance Fund recommends 3-6 months as a target.

Calculated For: 990 + 990EZ filers.

Usage

get_months_cash_operations( df,
  cash                 = "F9_10_ASSET_CASH_EOY",
  savings              = "F9_10_ASSET_SAVING_EOY",
  pledges_receivable   = "F9_10_ASSET_PLEDGE_NET_EOY",
  accounts_receivable  = "F9_10_ASSET_ACC_NET_EOY",
  total_expenses       = "F9_09_EXP_TOT_TOT",
  depreciation         = "F9_09_EXP_DEPREC_TOT",
  numerator = NULL, denominator = NULL, winsorize = 0.98 ,
  range     = "zp",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df: A data.frame containing the fields required for computing the metric.
cash: Cash on hand, EOY.
savings: Short-term investments (savings), EOY.
pledges_receivable: Pledges and grants receivable, EOY.
accounts_receivable: Accounts receivable, EOY.
total_expenses: Total functional expenses.
depreciation: Depreciation, depletion, and amortization.
numerator: Optional. A pre-aggregated column name for liquid assets, bypassing the individual cash, savings, pledges_receivable, and accounts_receivable arguments. Cannot be combined with those arguments.
denominator: Optional. A pre-aggregated column name for the denominator (annual non-depreciation expenses). The function divides this by 12 internally. Cannot be combined with total_expenses or depreciation.
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 "zp". 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:

- `months_cash_ops`   - months of operating cash on hand (raw)
- `months_cash_ops_w` - winsorized version
- `months_cash_ops_z` - standardized z-score (based on winsorized values)
- `months_cash_ops_p` - percentile rank (1-100)

Details

Primary uses and key insights

Months of cash on hand is the monthly expression of get_days_cash_operations(), expressing the same liquidity concept in a unit that is more natural for annual budget planning and board reporting. It is one of the most commonly reported metrics in nonprofit financial dashboards and funder due diligence.

Formula variations and their sources

The denominator uses (total expenses - depreciation) / 12. Subtracting depreciation follows standard practice (Zietlow et al. 2007) because the ratio measures cash coverage of cash expenses. Some formulations use total expenses without the depreciation adjustment; others use a rolling 12-month average of monthly expenses to smooth seasonal variation, which is not possible with annual 990 data.

Canonical citations

Nonprofit Finance Fund. State of the Nonprofit Sector Survey (annual).
- Uses months of cash as a primary financial health indicator.
Zietlow, J., Hankin, J.A. & Seidner, A. (2007). Financial Management for Nonprofit Organizations. Wiley.
GuideStar/Candid. Nonprofit Finance Indicators. - Months of cash is one of the core metrics in the GuideStar financial health profile.

Variables used:

F9_10_ASSET_CASH_EOY: Cash on hand (cash)
F9_10_ASSET_SAVING_EOY: Savings (savings)
F9_10_ASSET_PLEDGE_NET_EOY: Net pledges receivable (pledges_receivable)
F9_10_ASSET_ACC_NET_EOY: Accounts receivable (accounts_receivable)
F9_09_EXP_TOT_TOT: Total functional expenses (total_expenses)
F9_09_EXP_DEPREC_TOT: Depreciation and amortization (depreciation)

Examples

library( fiscal )
data( dat10k )

d <- get_months_cash_operations( df = dat10k )
#>    :: Monthly operating expenses equal to zero :: 86 case(s) replaced with NaN
head( d[ , c( "months_cash_ops", "months_cash_ops_w", "months_cash_ops_z", "months_cash_ops_p" ) ] )
#>    months_cash_ops months_cash_ops_w months_cash_ops_z months_cash_ops_p
#>              <num>             <num>             <num>             <int>
#> 1:              NA                NA                NA                NA
#> 2:        3.863827          3.863827        -0.5717118                28
#> 3:       16.464447         16.464447         0.7976926                74
#> 4:              NA                NA                NA                NA
#> 5:        1.565055          1.565055        -0.9414216                12
#> 6:              NA                NA                NA                NA