The Six Metrics Every Nonprofit Board Should Know

A board does not have to read financial statements like an auditor. A small set of metrics, taken together, shows whether the organization is financially healthy. Six do most of the work. No single one tells the full story. Read together, they let a board see clearly where things stand.

Here are the six, in the order I walk them.

1. Quick Ratio

The quick ratio measures whether an organization can cover its near-term obligations with the resources it can actually access soon.

Quick Ratio = (Cash + Unrestricted Investments + Receivables due within 12 months) divided by Current Liabilities.

Above 2.0 is very healthy. Between 1.0 and 2.0 is healthy. Below 1.0 is a warning sign worth attention. The red flags to watch for are a ratio declining across three or more reporting periods, and receivables that are counted as current but are actually past due. A good board question: what is our quick ratio compared to the same quarter last year, and are any of our receivables past due?

2. Net Income vs. Net Cash

This one compares two numbers that should tell a consistent story: the reported surplus or deficit for the period, which is the change in net assets, against the actual change in cash.

When they diverge, it is worth understanding why. The biggest risk here is releasing restricted funds without replenishing them. An organization releases prior-period restricted revenue to cover current expenses, and on the income statement everything looks balanced. Underneath, if new restricted gifts are not being raised at the same pace, cash steadily dwindles even though the surplus reads as fine.

The fix is simple to state and easy to overlook: each year, compare the restricted funds released against the new restricted funds raised. If releases consistently outrun new gifts, the income statement is flattering a cash position that is weakening.

3. Days of Cash on Hand

Days of cash on hand answers a plain question: if revenue stopped, how long could the organization keep operating on what it has?

Days of Cash = (Total Cash + Short-Term Investments) divided by (Annual Budget divided by 365).

More than 200 days is very strong, and at that level a board can reasonably ask whether some of that cash should be working harder for yield. Between 90 and 200 days is healthy. Between 30 and 90 days needs attention, and is the point to build reserves and explore a line of credit before it is needed. Below 30 days is urgent.

If the number is low, the immediate actions are practical and operational: pause non-essential discretionary spending, accelerate the collection of receivables, line up a line of credit, and communicate clearly with the board. The point is to extend runway and buy time to strengthen the underlying model.

4. Liquid Unrestricted Net Assets (LUNA)

LUNA strips out the assets you cannot spend to show what is truly available.

LUNA = Unrestricted Net Assets minus Fixed Assets (property, plant, and equipment).

Here is why it matters. An organization can report $5 million in unrestricted net assets, which sounds strong. But if $6 million of that is tied up in buildings, LUNA is negative $1 million. That means day-to-day operations are partially relying on money that is not really available, often restricted money. A positive and growing LUNA is healthy. A negative LUNA is critical, because the balance sheet looks stronger than the spendable reality.

5. Coverage of Restrictions

This metric tests whether an organization actually holds enough cash to cover the restricted obligations it has taken on.

Coverage of Restrictions = (Unrestricted Cash + Restricted Cash) divided by Total Restricted Obligations.

Above 1.0 means there is enough cash on hand to cover restricted obligations. Below 1.0 calls for a careful distinction. A timing issue is when coverage dips below 1.0 this month because a grant is due to arrive next month. A structural issue is when coverage sits below 1.0 for three or more months, which usually signals that restricted cash is being used for general operations. The first is a working-capital question. The second is a question about the model itself.

6. Board Giving as a Percent of Operating Budget

This one is about ownership.

Board Giving = Total Board Contributions divided by Annual Operating Budget.

At 10% or more, board giving is strong. Between 5% and 10% is getting there. Below 5% is worth a conversation. Why 10%? The SEC treats a 10% stake as a significant ownership stakeholder, and a nonprofit board functions as the organization's owners. Distribution matters as much as the total. A healthy number should be spread across the board, not carried by one or two wealthy members.

Reading the Six Together

No single metric tells the full story. A healthy organization shows green across all six. A struggling one may look fine on one or two while showing warning signs on the others, which is exactly why a board needs the full picture rather than a single headline number.

The best action a board can take is straightforward. Ask your finance team to calculate all six for the most recent period and present them at the next board meeting. Once a board can see liquidity, sustainability, and the real availability of resources side by side, the financial conversation gets a great deal clearer.