26 Oct PADM 702 Research Paper: Fiscal Solvency Assignment Guide
Solvency ratios are used to examine the ability of a government to meet its long-term obligations. The ratios are most used by current and prospective lenders. The ratio compares an approximation of cash flows to liabilities and is derived from the following ratios: (1) Current Ratio, (2) Operating Ratio, and (3) Net Asset Ratio, which are among the most commonly used ratios in municipal government.
Instructions
1) Open and save the Bay City, Texas – Abbreviated Budget Bay City 2025 and Ratio Worksheet, found on the assignment page.
2) Open the Abbreviated Budget for Bay City, Texas and copy the appropriate figures into the Ratio Worksheet. Use Adopted Budget FY 2025.
3) After calculating and analyzing the Measures of Solvency ratios, formulate at least an 8-10 -spaced page (including table and chart) 1) analyzing the degree of solvency of Bay City, Texas, (2) solvency methods and techniques and why they are important for governments to use, and (3) their advantages and disadvantages.
Note: All spreadsheets in this assignment are interactive. After you enter the appropriate figures, the percentages will be computed for you. You will not have to do that. Thus, you will only have to focus on the analysis.
Format of Research Paper (Use bolded as headings in paper):
The Degree of Solvency of Bay City, Texas
Using the table and chart of the Measures of Solvency data you computed for Bay City, Texas, analyze the degree of solvency of Bay City, Texas.
· Develop a paragraph introduction to the table and chart, present the data in a table and chart using the attached table and chart formatting conventions Present an accurately computed and professionally table and chart. (The worksheet is interactive and arranged with the correct formatting. Thus, you probably will only need to copy and pasted them as a picture.)
· Analyze the table and chart. (Tables/charts are necessary but not sufficient for a sound analysis . An analysis is not just repeating what is in the chart.
· Focus on Analyzing the Research Questions but do not focus on dollar amounts, emphasize the ratios.
Research Questions for The Degree of Solvency of Bay City, Texas section
1) Research Question: How do the data for each ratio compare to the cutoff points? For example, what does the ratio tell you about the city’s fiscal solvency? (The ratio should be greater than 1.50.)
2) Research Question: What are the relationships of each ratio to each other? How does each ratio relate to the city’s solvency?
3) Research Question: Why do these ratios occur? ( You needed to explore the internet for information about Bay City, Texas in 2025 so that you can answer this question.)
How to Interpret ratios :
· For Current Liabilities Ratio = Current Assets/Current Liabilities: The ratio should be greater than 1.50. When the Current Liabilities Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Current Liabilities Ratio was at 1.84, the ratio of 1.84 means that the City has 1.84 times more current assets than liabilities. When the Current Liabilities Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Current Liabilities Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.50 or less means a lower ability to obtain additional financing or higher interest charged for any financing obtained.
· For Operating Ratio = Total Revenues/Total Expenses: The ratio should be greater than 1.50. When the Operating Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Operating Ratio was at 1.84, the ratio of 1.84 means that the city has 1.84 times more current revenues than expenditures. When the Operating Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Operating Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.50 or less means a lower ability to obtain additional financing or higher interest charged for any financing obtained.
· F or Net Asset Ratio = Total Assets/ Restricted and Unrestricted Net Assets: The ratio should be greater than 1.50. When the Net Asset Ratio is greater than 1.00, it shows the financial stability of an organization over the next fiscal year. For example, if the Net Asset Ratio was at 1.84, the ratio of 1.84 means that the City has 1.84 times more current assets than restricted and unrestricted net assets. When the Net Asset Ratio is greater than 1.00, it tells the financial stability of an organization over the next fiscal year is sound. When the Net Asset Ratio is less than 1.00, it tells the financial stability of an organization over the next fiscal year is unsound. As a rule of thumb, a ratio of 1.50 or less means a lower ability to obtain additional financing or higher interest charged for any financing obtained.
Solvency Methods and Techniques and Why They Are Important for Government
· Discuss and evaluate solvency methods and techniques and why they are important for governments. What are their advantages and disadvantages?
· Hint: Solvency ratios are extremely useful in helping analyze a government’s ability to meet its long-term obligations. However, like most financial ratios, they must be used in the context of an overall analysis.
· Refer to Assignment Resources: Website: What is Solvency? and Website: Solvency Ratios Measure Financial Risk.
What is Solvency and How it Solves Financial Issues
· Discuss and evaluate what solvency is and how it solves financial issues?
· Refer to Assignment Resource: Website: What Solvency is and How it Solves your Financial Woes.
Solvency vs Liquidity
· Discuss differences between Solvency vs Liquidity.
· Refer to Assignment Resource: What is Solvency vs Liquidity?
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