Street lamps, alleys, ratio analysis, and nonprofit organizations

This article offers an accounting‐based framework for evaluating the efficiency of nonprofit organizations using four factors. Separately, these factors reflect (1) the proportion of revenues actually used in the current year, (2) the proportion of the expenditures allocated to programs, (3) the units of output produced from that spending, and (4) the value of the units produced, expressed in terms of an index value. Combined, these four factors measure the value of units produced per dollar of revenue received, an accounting measure of overall efficiency. Using this framework provides insight into both the appropriateness and the limitations of employing solely financial measures to judge nonprofit organizations and also identifies conceptual areas absent from currently available evaluation tools.