Analysis of changes in federal financial ratios

Abstract

During the past decade, Congress has passed legislation in an attempt to improve federal accounting practices. Furthermore, the Office of Management and Budget standardized the format for federal entities to follow in preparing their annual financial statements. The central objective of this study was to analyze the patterns over time in federal financial ratios created from data contained in these annual statements. The study examined the form and content of the new federal financial statements and developed and applied a framework of 31 financial ratios to the FY 1998, 1999 and 2000 financial statements of 22 of the 24 federal entities affected by the CFO Act of 1990. It analyzed ratio values in order to answer: (1) What patterns in financial ratio values exist across the various entities of the federal government? (2) What changes occur in federal entities' financial ratios over time? (3) What growth trends exist in financial ratios over time, and how consistent are those trends? (4) How stable are the financial ratios? (5) How do the various financial ratios correlate to one another, and how stable are these ratio relationships over time? Although there exists no strong evidence for overall trends in federal financial ratios, the ratios are informative in the sense that they discriminate both between the entities and across time; if differences exist between the financial conditions of the entities, or if changes in a particular entity's financial condition occur over time, the ratios will detect them.