14-10. Lafayette Film Center (LFC) is a not-for-profit theater that plays independent films. In addition to revenue from theater admissions, LFC relies on concession and caf sales, grants and other external support, theater rental sales, and proceeds from special events and other programs that not only promote appreciation for independent films, but also generate grants and contributions. LFCs new executive director has asked you, as the director of finance, to provide an analysis of the organizations financial position.

Refer to Exhibits 14-7 through 14-10, which present LFCs statements of financial position, statements of activities, statements of functional expenses, and statements of cash flows for the years ended December 31, 2018 and 2017.

1. Does LFC have an endowment? How do you know?
2. How much of LFCs temporarily restricted net assets were reclassified as unrestricted in 2018? Where can this be found in the statements of financial position and statements of activities?
3. Calculate the four profitability ratios presented in the chapter for LFC for 2018 and 2017 as well as the percent change in each from 2017 to 2018. By which measure did LFCs profitability deteriorate the most, and by how much?
4. LFCs total expenses grew by over 100 percent from 2017 to 2018, while its total revenue and other support declined by over 50 percent. Looking at the theaters statements of activities:
   1. Excluding interest/investment income and the one-time sale of tax credits, which three revenue or support categories declined by over 50 percent from 2017 to 2018?
   2. Which expense category grew by over 100 percent?
5. Calculate LFCs program services ratio for 2018 and 2017 as well as the percent change in each from 2017 to 2018. Is LFCs program services ratio for 2018 higher than the commonly accepted benchmark?
6. Given your answers to questions 4 and 5, would you recommend that LFC reallocate some of its spending from program services to fundraising in 2015? Why or why not?
7. What was LFCs depreciation expense in 2017 and 2018? Which financial statement(s) provide this information?
8. Now that receivables constitute a much larger proportion of LFCs assets than in the past, the executive director has asked you to calculate the receivables turnover ratio and average collection period for 2018.
   1. Which revenue items will you exclude from the ratio? Why?
   2. What is LFCs receivables turnover ratio and average collection period for 2018? Are they favorable or unfavorable? Why?
   3. Would you recommend recalculating the receivables turnover ratio using the average of beginning-of-year and end-of-year receivables in the denominator? Why or why not?
9. Calculate the quick ratio and debt to equity ratio for LFC for 2018 and 2017 as well as the percent change in each from 2017 to 2018. Are these trends favorable or unfavorable? Which presents the greater area of concern for 2018, and why?
10. Given your answers to the questions above and an overall review of LFCs financial statements, would you characterize LFCs financial position as weak, neutral, or strong? Why?