Operating margin
A nonprofit's operating margin is revenue minus expenses, expressed as a share of revenue — positive means a surplus, negative means the year ran at a deficit.
One deficit year is rarely alarming; charities deliberately spend down big gifts. A pattern of deep deficits, though, means the organization is consuming its reserves and will eventually have to cut programs.
CharityIndex grades margin inside the financial-health criterion: roughly break-even or better scores highest, and sustained deep deficits pull the score down sharply.
Related terms
- Operating reserves — Operating reserves are the unrestricted funds a nonprofit can tap to keep programs running when revenue dips — commonly measured in months of operating expenses.
- Net assets — Net assets are what a nonprofit owns minus what it owes — its accumulated financial cushion, the nonprofit equivalent of equity.
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