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Operating Ratio

Source: R/get-netassets-growth-ratio.R
get_netassets_growth_ratio.Rd

Year-over-year change in total net assets, expressed as a proportion of beginning net assets.

Formula:

or = ( net_assets_eoy - net_assets_boy ) / net_assets_boy

Definitional Range

Unbounded in both directions. A value of 0 means net assets were unchanged. Values below -1.0 (a drop of more than 100\ lost more than its entire starting equity base, resulting in negative net assets. The ratio is undefined (NA) when BOY net assets equal zero.

Benchmarks and rules of thumb

  • Small positive values (0.01-0.10) are typical and healthy for operating nonprofits.

  • Below -0.10 in a single year is a warning sign; sustained negative growth indicates a structural financial problem.

  • Very high positive values (above 0.50) often reflect one-time large gifts or asset revaluations rather than sustained operational performance.

Calculated For: 990 + 990EZ filers.

Usage

get_netassets_growth_ratio( df,
  net_assets_eoy = c( "F9_10_NAFB_TOT_EOY", "F9_01_NAFB_TOT_EOY" ),
  net_assets_boy = c( "F9_10_NAFB_TOT_BOY", "F9_01_NAFB_TOT_BOY" ),
  winsorize = 0.98 ,
  range     = "np",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df

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

net_assets_eoy

Total net assets, end of year. Accepts one or two column names; if two are provided they are coalesced with the 990 value taking priority over 990EZ.

net_assets_boy

Total net assets, beginning of year. Accepts one or two column names.

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:

- `netassets_growth`   - operating ratio (raw)
- `netassets_growth_w` - winsorized version
- `netassets_growth_z` - standardized z-score (based on winsorized values)
- `netassets_growth_p` - percentile rank (1-100)

Details

Primary uses and key insights

The net assets growth ratio measures the year-over-year percentage change in total net assets - essentially the organizational equivalent of return on equity growth. Positive values indicate the organization grew its equity base during the year (surplus plus other balance sheet adjustments); negative values indicate net asset erosion (deficit or write-downs).

This ratio captures all changes to net assets, including unrealized investment gains, prior-period adjustments, and currency translation effects, not just the operating surplus. It is therefore a broader measure than get_return_netassets_ratio(), which uses only the revenues-less-expenses figure.

Formula variations and their sources

(Net assets EOY - Net assets BOY) / Net assets BOY. This is the standard percentage change formula. Some studies use the absolute dollar change as the dependent variable rather than a ratio, especially when the BOY base is near zero or negative.

Using BOY net assets (rather than EOY or average) as the denominator is the standard practice for performance ratios: it measures the return generated on the starting equity base, avoiding circular dependency since the ending value is determined in part by the surplus being measured.

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. - Equity growth is a component of the financial vulnerability framework.

  • Greenlee, J.S. & Trussel, J.M. (2000). Predicting the financial vulnerability of charitable organizations. Nonprofit Management and Leadership, 11(2), 199-210.

Variables used:

  • F9_10_NAFB_TOT_EOY: Total net assets, EOY (net_assets_eoy, 990)

  • F9_01_NAFB_TOT_EOY: Net assets from Part I, EOY (net_assets_eoy, 990EZ fallback)

  • F9_10_NAFB_TOT_BOY: Total net assets, BOY (net_assets_boy, 990)

  • F9_01_NAFB_TOT_BOY: Net assets from Part I, BOY (net_assets_boy, 990EZ fallback)

Examples

library( fiscal )
data( dat10k )

d <- get_netassets_growth_ratio( df = dat10k )
#>    :: Beginning net assets equal to zero :: 444 case(s) replaced with NaN
head( d[ , c( "netassets_growth", "netassets_growth_w", "netassets_growth_z", "netassets_growth_p" ) ] )
#>    netassets_growth netassets_growth_w netassets_growth_z netassets_growth_p
#>               <num>              <num>              <num>              <int>
#> 1:       0.58829164         0.58829164         1.09920637                 86
#> 2:       0.29746908         0.29746908         0.71746412                 76
#> 3:       0.01835696         0.01835696        -0.25268413                 41
#> 4:       2.11238532         2.11238532         1.80469110                 96
#> 5:      -0.02331568        -0.02331568        -0.52569174                 31
#> 6:       0.06191028         0.06191028        -0.01204626                 50