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☛ NCHA Tax Return Analysis 9-10-18

NCHA Tax Return Analysis

Clarification and Risk Analysis

 By Rick Dennis
Sept. 10, 2018

NCHA Tax Return Analysis

 

Clarification and Risk Analysis

 

The following Risk Analysis was performed by the WIND RIVER COMPANY LLC, Richard E. “Rick” Dennis, Analyst at the request of Mrs. Glory Kurtz Ann Kurtz, allaboutcutting.com, and encompasses the latest IRS 990 tax filings for the National Cutting Horse Association.

 

The National Cutting Horse Association is a 501 (C) (3) Nonprofit organization, organized in the State of Texas.  Therefore, the following Risk Analysis should apply whether the company is a for profit or nonprofit with the exception that a for profit pays corporate business taxes and the nonprofit doesn’t pay corporate business taxes. Any profits made by a nonprofit are kept to forward the vision and mission statement of its State business organization and bylaws.

 

What Is A Good Profit Margin?

 

Typically, an operating profit margin of a company should be compared to its industry or a benchmark index like the S&P 500.  For example, the averageoperating profit margin for the S&P was roughly 11% for 2017.  A company that has an operating profit margin higher than 11% would have outperformed the overall market. The National Cutting Horse Associations latest IRS 990 filing’s states on page 12 of their latest tax filing that total revenue is $24,026,610. Total expenses for this specific tax period is $22,941,841.  During this specific tax reporting period, the NCHA’s Income less Expenses is $1,084,769. A quick percentage ratio calculation revealed the NCHA’s Income less Expenses is approximately (4.5%).  This mathematical calculation revealed the NCHAis operating below S&P 500, or below market standards for operating efficiency, e.g., :

 

What Is Considered A Healthy Operating Profit Margin?

 

Operating profit margin is one of the key profitability ratiosthat investors and analysts consider when evaluating a company.  Operating margin is considered to be a good indicator of how efficiently a company manages expenses because it reveals the amount of revenue returned to a company once it has covered virtually all of both its fixed and variable expenses except for taxes and interest. Typically, a healthy operating profit margins ranges from 11% to 20%.

 

What Does Operating Profit Margin Tell Investors and Business Owners?

 

The operating profit margin informs both business owners and investors about a company’s ability to turn a dollar of revenue into a dollar of profit after accounting for all the expenses required to run the business.  This profitability metric is calculated by dividing the company’s income by its total revenue.  There are two components that go into calculating operating profit margins: revenue and operating profit. This metric was used in the forgoing to establish the (4.5%) NCHA Income less Expenses mathematical ratio.

 

Revenue is the top line on a company’s income statement.  Revenue, which is sometimes referred to as net sales, reflects the total amount of income generated by the sale of goods or services.  Revenue refers only to positive cash flow directly attributable to primary operations without withdrawing from a company’s savings or investment programs or loans to sustain operations.  When revenue ratios are low it can indicate a company that’s not very well run.  In a worst case scenario, it’s headed for a disastrous conclusion.

 

The Bottom Line.

A consistently healthy bottom line depends on rising operating profits over time.  Companies use operating profit margin not only to spot trends in growth, but also to pinpoint unnecessary expenses to determine where cost-cutting measures can boost their bottom line.  To gauge a companies performance relative to its peers, investors can compare its finances to other companies within the same industry.  However, this metric is also useful in the development of an effective business strategy as well as serving as a comparative metric for investors.  To learn more financial analysis, please confer with a certified public accountant, economist, or learn“How the Income Statement and Balance Sheet Differ?”

 

NCHA 990 RECAP

There’s a few important elements of this 990 tax return that requires explanation, e.g., :

 

NCHA IRS 990 TAX PERIOD:

 For the 2015 tax year, or tax year beginning 10/01/2015 and ending 09/30/2016.

 

PART IX STATEMENT OF FUNCTIONAL EXPENSES

 Number (7) Other Salaries and Wages:

$2,087,139.00

 

Program Services Expenses

$1,137,015.00

 

Management and General Expenses

$950,124.00

 

The key element to this category is that Management Expenses are calculated at the rate of (45.5%) of total salaries.  I don’t believe these salary quotes takes into consideration of perks to include, but not limited to retirement contribution, insurance, tax contributions, etc. If the foregoing Program services expenses are representative of the 42 employees then the average salary paid to the (42) excluding the management team would calculate to the average salary of being approximately $27,071.78 each.  Check with the NCHA for clarification of the computations.

 

Number (11) Fees for services (non employees)

b – Legal
$140,100.00

c – Accounting
$93,651.00

d – Lobbying

$150,000.00

 

SCHEDULE (O)

 The organizations board of directors has vested all powers of the board of directors in the Executive Committee, except the power to amend by laws and except as otherwise limited by the board of directors or by statute the Executive Committee manages the affairs of the organization between meetings of the board of directors at all times, the Executive Committee is subject to the direction of the board of directors.

 

Essentially, what this clause means is that the NCHA Executive Committee has total control of the NCHA – at all times, except when a meeting of the board of directors is called to order.  Their power is ONLY limited by statute or a majority vote of the board of directors.

Click below for NCHA 990 from Oct. 1, 2015  to Oct. 30, 2016

NCHA 990 for 2015-2016

 

 

 

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