The financial pillar of the local church is spirit-led giving through faithful stewardship by its members. While there is a spiritual dimension to this that cannot be measured, there are some tangible ratios that can help you gain a better understanding of your congregation and its giving patterns. These ratios represent important indicators every church should understand.
1. Net Income Ratio
The ratio of “Change in Unrestricted Net Assets” to “Unrestricted Revenues”
The purpose of this ratio is to show whether the results of your church’s general operations are positive or negative, and by how much. It answers the question of whether the church is making or losing money in its basic day-to-day function of ministering to the local community. Obviously a church is not a business and is not trying to generate a profit. However, if a church is continually losing money in its basic operations, it will eventually reach a point where it is no longer able to function and will close.
That point, of course, is easier to identify in retrospect, but the net income ratio can warn of impending financial distress. The unrestricted change in net assets (or net income or net loss, in business terms) measures operational results for management. It explains whether or not management met the anticipated spending targets, and it tells what percentage of unrestricted revenues resulted in net income.
Consider large one-time events when looking at this ratio. For example, receipt of a large one-time unrestricted gift that has not been spent at year-end would make the ratio temporarily high. Conversely, the ratio would appear low if the church incurred a large one-time expenditure that won’t be repeated much, if ever, in the future, such as buying a new HVAC system.