Financial ratios in analyzing and measuring financial performance in selected Seventh-Day Adventist institutions in Zimbabwe

Abstract

Financial ratios are tools for analyzing and interpreting financial statements, these ratios are categorized into five sections if it were a for profit enterprise. In not for-profit institutions, four sections of ratios can be used to analyze financial statements. These are liquidity ratios, solvency ratios, asset turnover ratios, surplus/profitability and equity ratios. The researcher observed that in the Seventh-day Adventist institutions in Zimbabwe only three ratios were used: the two liquidity ratios and self-support ratio which are unique to the church. It is therefore against this background that the researcher investigated the usefulness of the additional ratios in the analysis of the institutions’ financial statements.The study examined the respondents’ perceptions on the usefulness of the additional ratios and also intended to suggest additional ratios that would be considered by the institutions under study in the analysis and interpretation of the financial statements to enhance the effectiveness in determining the financial performance of the selected Seventh-day Adventist institutions in Zimbabwe. The survey research strategy was used to collect data and the research was a cross sectional study which sought to identify ratios which can be used in analyzing and performance measurement of the financial statements. The study utilized both descriptive and inferential statistics to examine the usefulness of adopting additional ratios. Results from the study showed that liquidity ratios, solvency ratios, asset turnover and profitability ratios were equally important for adoption in the Seventh-day Adventist institutions. In addition, there are significant relationships between liquidity, solvency as well as profitability ratios and financial performance measurement. However, only profitability/surplus ratios are significant predictors of financial performance measurement. The study therefore concludes that there is need for the Seventh-day Adventist institutions in Zimbabwe, in particular Zimbabwe Union Conference and its entities to adopt the additional ratios for use in the analysis and interpretation of the financial statements. These additional ratios being proposed include solvency, asset turnover and especially profitability. Besides, in faith-based institutions such as the Seventh-day Adventist institutions in Zimbabwe, surpluses are key to financial sustainability.