Trends in key ratios using the GFOA Financial Indicators Databases 1989-1993.

• Author: Brown, Ken W.
• Position: Government Finance Officers Association

The underlying stability in the ratios' five-year performance enhances the databases' utility and credibility as a benchmarking tool.

Obtaining relatively recent comparative data is a common problem for analysts of municipalities, schools, counties, and other types of government organizations. The Government Finance Officers Association's (GFOA) Financial Indicators Databases, which are published on a two-year lag from the current year, are as current as most national data provided for other types of organizations. Comparisons made with two- to three-year-old statistical information, however, can be quite reliable when one is able to verify that the comparative information often does not change significantly over a two-year period.

The GFOA began annual publication of its Financial Indicators Database with the FY1989 data. The five-year set of databases now available makes it possible to observe changes that may have occurred in financial ratios during the FY1989 to FY1993 period. This article presents a statistical summary and analysis of 10 key financial ratios - derived from the Financial Indicators Databases - for each of the five years and charts the ratios to identify any major trends in each. Ratios selected are those developed by the author for use in his 10-Point Test of Financial Condition, which was presented in the December 1993 issue of Government Finance Review.

The 10-Point Test offers a method for comparison of a city's 10 key ratios with those of other cities across the nation - the hundreds of cities included in the Financial Indicators Databases. Exhibit 1 lists the 10 ratios that the author considers to be the most meaningful in financial condition assessment and provides a clarification of the ratio components. The author's designation of what is a favorable indicator - a high or low ratio - also is shown.

The Financial Indicators Databases contain all the data necessary to compute the key ratios in Exhibit 1. The databases are provided in a dBASE IV database format, which provides the user with a flexible way to access the data. The comparative ratios used in this article have been developed by the author after combining the five yearly databases into a single database and conducting various analyses of the aggregate data.

Exhibit 2 displays the 10 key ratios for each of the five years, FY1989 through FY1993, in both a tabular and graphical form. The tabular portion, shown on the left side, indicates the fiscal year, the number of cities, and the ratio results showing the quartile cutoff points. Under the quartile system, the ratios are first ranked from highest to lowest in terms of the favorability definition assigned in Exhibit 1. The ratios are then split into four quartiles, each representing 25 percent of the cities in the group. In Exhibit 2, the 25th percentile column contains a value that separates Quartile 1 from Quartile 2, while the 50th and 75th percentile columns separate Quartiles 2 from 3 and Quartiles 3 from 4, respectively. For example, for ratio I in FY1989, $432 divides Quartiles 1 and 2 in that year's database, $562 separates Quartiles 2 and 3, and $767 is the dividing point between Quartiles 3 and 4.

The ratios shown in the three percentile columns are high or low depending on the favorability definitions contained in Exhibit 1. For example, ratio 1 (revenues per capita) has a lower value in the 25th percentile than the 75th percentile to reflect that a higher ratio is considered favorable. In contrast, low values for ratio 3 (general...