8 to 10 page paper
The Director
AssignmentResourceFiscalSolvencyAssignmentGuide.docxPADM 702
Assignment Resource: Fiscal Solvency Assignment Guide
Solvency ratios are used to examine the ability of a government to meet its long-term obligations. The ratios are most used by current and prospective lenders. The ratio compares an approximation of cash flows to liabilities and is derived from the following ratios: (1) Current Ratio, (2) Operating Ratio, (3) Net Asset Ratio, and (4) Revenue Per Capita.
The formulas for these ratios are listed below:
Current Ratio = Current Assets/Current Liabilities
Operating Ratio = Total Revenue/Total Expenses
Net Asset Ratio = (Restricted + Unrestricted Net Assets)/Total Assets
Instructions
1) Open and save the Assignment Resource: Abbreviated Budget for Bay City, Texas – to be used later.
2) The population of Bay City Texas in 2016 was 17,558.
3) Open and save the Assignment Resource: Bay City Financial Indicators Worksheet
4) Using the Abbreviated Budget for Bay City, Texas open the Bay City Financial Indicators Worksheet and compute the Measures of Solvency for Bay City, Texas for 2016.
5) After calculating and analyzing the Measures of Solvency ratios, formulate at least an 8-10 -spaced page (including tables and charts) 1) analyzing the degree of solvency of Bay City, Texas, (2) solvency methods and techniques and why they are important for governments to use, and (3) their advantages and disadvantages.
Note: All spreadsheets in this assignment are interactive. After you enter the appropriate figures, the percentages will be computed for you. You will not have to do that. Thus, you will only have to focus on the analysis.
Format of Research Paper (Use bolded items as headings in paper):
The Degree of Solvency of Bay City, Texas
· Using the charts of the Measures of Solvency data you computed for Bay City, Texas, analyze the degree of solvency of Bay City, Texas. ( Professionally presented tables and/or charts and analysis are expected .)
· For Current Liabilities Ratio = Current Assets/Current Liabilities: The ratio should be greater than 1.50. When the Current Liabilities Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Current Liabilities Ratio was at 1.84, the ratio of 1.84 means that the City has 1.84 times more current assets than liabilities. When the Current Liabilities Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Current Liabilities Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.5 or less means lower ability to obtain additional financing or higher interest charged for any financing obtained.
· For Operating Ratio = Total Revenues/Total Expenses: The ratio should be greater than 1.50. When the Operating Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Operating Ratio was at 1.84, the ratio of 1.84 means that the City has 1.84 times more current revenues than expenditures. When the Operating Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Operating Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.5 or less means lower ability to obtain additional financing or higher interest charged for any financing obtained.
· For Net Asset Ratio = Total Assets/ Restricted and Unrestricted Net Assets: The ratio should be greater than 1.50. When the Net Asset Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Net Asset Ratio was at 1.84, the ratio of 1.84 means that the City has 1.84 times more current assets than restricted and unrestricted net assets. When the Net Asset Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Net Asset Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.5 or less means lower ability to obtain additional financing or higher interest charged for any financing obtained.
Solvency Methods and Techniques and Why They Are Important for Government
· Discuss and evaluate solvency methods and techniques and why they are important for governments to use. What are their advantages and disadvantages?
· Hint: Solvency ratios are extremely useful in helping analyze a government’s ability to meet its long-term obligations; but like most financial ratios, they must be used in the context of an overall analysis.
· Refer to Assignment Resources: Website: What is Solvency? and Website: Solvency Ratios Measure Financial Risk.
What is Solvency and How it Solves Financial Issues
· Discuss and evaluate what solvency is and how it solves financial issues?
· Refer to Assignment Resource: Website: What Solvency is and How it Solves your Financial Woes.
Solvency vs Liquidity
· Discuss differences between Solvency vs Liquidity.
· Refer to Assignment Resource: What is Solvency vs Liquidity?
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