Financial Ratio Analysis for Government Discussion Chapter

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Ratio analysis is not used in as widespread a manner in government as it is in the private sector. While they are very necessary, they have to be adapted specifically to the unique problems of the public sector which is not based upon profit. These primary issues include the weaknesses in the way that the key information elements needed for the assessment financial condition is reported. Though reporting methods have improved, financial analysts in the public sector must however be knowledgeable enough to draw the appropriate information government sources. Unfortunately for the accountant, it is generally not easy to asses a government agency's financial condition only from the information in financial reporting.

This however does not mean that financial conditions cannot be assessed in the public sector

. Such assessments can be done with ratio analysis methods.

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At the all state government and by extention federal and local levels as well financial conditions can be measured. Generalized ratios are difficult to compare from agency to agency since a unit of government is so very large and complex ("Methodology manual, data," 1995).

To recap, in financial ratio analysis can be applied nicely to government financial condition analysis. Traditional solvency ratios can adequately deal with financial condition analysis concerns if they are adapted to the needs of the public sector, especially if the results are expressed in general percentage terms that legislators and the public can better understand. If this is the case, they will work as well as they do in the private sectors to help meet and stay within budgets.

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