A Methodology for Measuring the Financial Sustainability of Non-Profit Organizations-An Empirical Investigation Using Financial Ratios
DOI:
https://doi.org/10.51325/ejbti.v3i1.195Keywords:
Liquidity, Profitability, Solvency, Financial Sustainability, Non-profit organizations.Abstract
Non-profit organizations (NPOs) are increasingly recognized as key actors that mobilize people, resources, and knowledge to address pressing social challenges. Ensuring fiscal sustainability is essential for these organizations to remain viable and effective over the long term. However, the measurement and evaluation of financial sustainability in NPOs remain a persistent challenge for both scholars and practitioners. This article proposes a structured framework for assessing financial sustainability using four key dimensions: (i) Financial Efficiency (FE), (ii) Profitability Performance (PP), (iii) Solvency Performance (SP), and (iv) Liquidity Performance (LP). This quantifiable framework is applied to analyze the annual reports of Indian NPOs. The empirical findings suggest that most organizations are in a transitional phase, gradually evolving toward financial sustainability. The study’s unique contributions lie in its context-specific methodology for evaluating NPO financial health in India, its use of robust archival data, the development of a comprehensive and nuanced scoring system, and its multi-year analytical perspective that uncovers key financial trends and patterns. Together, these contributions advance the academic literature and offer actionable insights for NPO managers in India—particularly valuable given the current lack of standardized approaches for assessing financial sustainability in the non-profit sector.
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