Fundamental dimensions of Financial condition in the federal government

Abstract

Historically, financial reports of federal agencies focused on budgetary accounting, the reporting of obligations and expenditures of appropriated funds. The Chief Financial Officers (CFO) Act of 1990 and subsequent legislation significantly changed this pattern by requiring the 24 largest government agencies to reorganize their financial staffs and establish Chief Financial Officers to reform accounting procedures and reporting. To achieve the goals of the financial reform acts, it must be determined if executive agencies are improving financial management. This determination may be facilitated by systematic financial analysis of agency operations using information provided in agency financial reports. The objective of this thesis is to examine financial ratios calculated from federal financial statement information in order to identify fundamental dimensions of financial condition within the federal government and the ratios representative of those dimensions. Statistical analysis of financial ratios using factor analysis was used to determine the fundamental dimensions of financial condition. The results indicate that nine fundamental dimensions of financial condition underlying the numerous financial ratios exist within the federal government. The dimensions are comprehensive in that they reflect the variance existing in the larger set of financial ratios. Individual ratios can be selected to represent or measure each dimension. These dimensions and ratios provide an approach to conducting a financial analysis.