One of the limitations of financial ratio analysis for not-for-profit organizations is that donors may incorrectly assume that there are federal or state laws that govern the percentage of annual revenues that a charity must spend on its programs.

Question

Quizplus · Accepted Answer

Financial ratio analysis may not take into account the unique goals and circumstances of not-for-profit organizations, which may cause donors to place undue importance on financial ratios such as program spending percentage. However, there are no federal or state laws that mandate a specific percentage of funds to be spent on programs for charities.

One of the Limitations of Financial Ratio Analysis for Not-For-Profit