Chapter 10 : Analysis of

Governmental Financial
Performance

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Members :
1. Monika EM Damanik
2. Janny Karina Ginting
3. Fahra Zaranissa Zade
LEARNING OBJECTIVES :

10-1 Explain the importance of evaluating governmental financial performance.

10-2 Distinguish among and describe key financial performance concepts, such
as: financial position, financial condition, and economic condition.
10-3 Explain the relationships among environmental factors, organizational
factors, and financial factors in determining governmental financial condition.
10-4 Identify, calculate, interpret, and analyze key ratios that measure
financial performance.
10-5 Describe how benchmarks can aid financial analysis and identify possible
sources of government information that can be helpful when benchmarking.
10-1 Explain the importance
of evaluating governmental
financial performance

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WHY EVALUATE GOVERNMENTAL FINANCIAL PERFORMANCE
IMPORTANT?

1. An “early warning” system of impending financial

difficulty can serve to prevent disruption in critical
government services.
2. Tax payers now, more than ever, demand better
performance from governmental official
3. Analytical tools have evolved to better track
governmental financial performance
Who needs to know about governmental financial condition ?

1. Government manager
2. Bond investor
3. Creditor
4. Legislator and oversight body
5. Citizens
6. Taxpayers
What do they need to know?

1. Whether the government will be able to continue

providing the desired level of service in the future
2. Whether future debt service payments maybe
threatened
3. If government is in compliance with all laws and
regulations
10-2 Distinguish among and describe
key financial performance concepts,
such as: financial position, financial
condition, and economic condition.

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Financial position VS Financial Condition

that financial position tends to be a short-term concept

that focuses on the assets that are cash or are normally
converted to cash in the near future and liabilities that
require cash in the near future. (liquidity)

financial condition as follows: The probability that a

government will meet both its financial obligations to
creditors, consumers, employees, taxpayers, suppliers,
constituents (solvency)
financial condition as composed of four types of solvency

1. cash solvency —a government’s ability to generate

enough cash over a 30- or 60-day period to pay its
bills;
2. budgetary solvency —a government’s ability to
generate enough revenue over its normal budgetary
period to meet its expenditures and not incur
deficits;
financial condition as composed of four types of solvency

1. long-run solvency —a government’s ability in the long-

run to pay all the costs of doing business such as
expenditures in the annual budget and those that
appear only in the years in which they must be paid;
and
2. service-level solvency —a government’s ability to
provide services at the level and quality that are
required for the health, safety, and welfare of the
community and that its citizens desire.
Economic condition

The GASB has tentatively defined economic condition as

A composite of a government’s financial position and its
ability and willingness to meet its financial obligations
and service commitments on an ongoing basis.
10.5 Use of Benchmark
to Aid Interpretation

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“Credit Industry Benchmarks”
 What is Benchmark?

A Benchmark are identify as a range, or any

target that provides an analysist as a basis to
compare and draw the conclusion whether it
would be good or bad conclusion
 Things need to be evaluate in analyzing ratios :

Stability Diversity Growth of

of revenue Unfunded

1 2 3 4 5

Flexibility Expenditure
Sources of Governmental
financial data
Example of Benchmarking data
Electronic Municipal Market Access
Credit Analysis Models
There are a sign of fiscal distress in interpretation of financial analysis :

1. Decline in revenues relative to expenditures.

2. Declining property values.
3. Declining economic activity.
4. Erosion of capital plant.
5. Increasing levels of unfunded obligations.
6. Inadequate capital expenditures.
THANK YOU !!

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