Question

For an organization with a Liabilities to Fund Balance ratio of 1.90, we can conclude that:

a. for every $1 in restricted fund balance, the entity has $1.90 in debt.
b. for every $1 in total fund balance, the entity has $1.90 in debt.
c. for every $1 in unrestricted fund balance, the entity has $1.90 in debt.
d. for every $1 in total assets, the entity has $1.90 in debt.

Answer 1

Answer: b. for every $1 in total fund balance, the entity has $1.90 in debt.

Explanation:

The Liabilities to Fund Balance ratio enables analysts to know the debt load of the fund. It is also known as the Debt to Net Worth ratio and is calculated by the formula:

= Interest - bearing debt / Total Capital

As shown from the formula, if the ratio is 1.90, it means that for every $1 in the total fund balance, the fund has $1.90 in debt.