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Performance Drivers

Working Capital

What drives unrestricted current assets, unrestricted current liabilities, and total expenses?

Culture Shock LA Dance Troupe, Los Angeles, CA. Photo by Ja Tecson.

Positive working capital results from managing unrestricted current assets that exceed the value of unrestricted current liabilities, so we look at what drives these component parts separately.

One-quarter of an organization’s expected level of unrestricted current assets can be understood by recognizing norms for its sector and budget size, and the characteristics listed below relate both to the organization and to its community. Most of the remaining variation in an organization’s level of unrestricted current assets is attributable to its expertise, good decision-making, reputation, etc., which is captured in its KIPI.

Drivers

What organizational characteristics affect this performance?

Total unrestricted current assets tend to be higher for organizations that target Asian Americans, and with higher levels of fixed assets and unrestricted contributions (specifically support at the state level). They also tend to grow larger as organizations age.

When organizations target kids or African Americans, their unrestricted current assets tend to be lower. Unrestricted current assets also tend to decrease when an organization has high levels of earned revenue, local funding, and when its offerings include a high proportion of world or national premieres.

How do community arts and leisure characteristics affect performance?

Having more arts education organizations, dance organizations, art museums, community-based organizations, theatres, or symphony orchestras in a community tends to raise the unrestricted current asset tide for all organizations in these sectors within the market while having more performing arts centers and nearby restaurants, bars, and hotels tends to lower the unrestricted current assets for all organizations in these sectors within the market.

How do socio-demographic characteristics of the community affect performance?

Unrestricted current assets are higher for organizations in communities where Hispanics/Latinos and African Americans make up a greater percentage of the population. This is also the case in communities where the population’s overall level of socioeconomic status is higher.

As the proportion of people aged 25 or younger in the community increases, unrestricted current assets go down. Unrestricted current assets also tend to be lower in more densely populated communities and in those with proportionally more Asian Americans.

What impact does public funding have on performance?

Overall state and federal grant activity in the larger local marketplace has a positive effect on an individual organization’s level of unrestricted current assets.

Positive working capital results from managing unrestricted current assets that exceed the value of unrestricted current liabilities, so we look at what drives these component parts separately.

Only 14% of an organization’s expected level of unrestricted current liabilities can be understood by recognizing norms for its sector and budget size, and the characteristics listed below relate both to the organization and to its community. Of the remaining variation in an organization’s level of unrestricted current liabilities, 31% is attributable to its expertise, good decision-making, reputation, etc., which is captured in its KIPI. More than half of what drives unrestricted current liabilities is random, meaning this is an area that, 1) is relatively less influenced by the organization’s situation and environment, and 2) has attracted somewhat less attention and focus in terms of intellectual capital or expertise developed by organizations.

Drivers

What organizational characteristics affect this performance?

Total unrestricted current liabilities tend to be higher for organizations with higher levels of fixed assets and occupancy costs.

When organizations have higher unrestricted revenue or when they have a high level of investments, unrestricted current liabilities tend to be lower. Unrestricted current liabilities also tend to be lower when an organization’s offerings include a high proportion of world or national premieres, or when they receive more federal support.

How do community arts and leisure characteristics affect performance?

Unrestricted current liabilities tend to be higher for organizations in communities with higher levels of public broadcast activity, as well as other leisure activities.

Having more PACs or dance companies in a community tends to raise the level of unrestricted current liabilities for all organizations in these sectors within a market. By contrast, the more opera companies, arts education organizations, or other museums, the more likely each is to have lower unrestricted current liabilities.

How do socio-demographic characteristics of the community affect performance?

Unrestricted current liabilities are higher for organizations in more populous communities.

Unrestricted revenue tends to be lower in communities with proportionally more Hispanics/Latinos or African Americans.

What impact does public funding have on performance?

Overall state and federal grant activity in the larger local marketplace has a positive effect on an individual organization’s level of unrestricted current liabilities.

Roughly half of an organization’s expected level of total expenses can be understood by recognizing norms for its sector and the characteristics listed below relate both to the organization and to its community.

Most of the remaining variation in an organization’s level of expenses is attributable to its expertise, good decision-making, talents, reputation, etc., which are captured in its KIPI. A mere 3% is random.

Drivers

What organizational characteristics affect this performance?

Total expenses increase with organizational age, program revenue, and higher spending levels on marketing and fundraising. They also tend to be higher for organizations that primarily serve either kids or African Americans.

Organizations that serve young adults or Asian Americans tend to have lower expenses than their counterparts that do not.

How do community arts and leisure characteristics affect performance?

Total expenses tend to be higher for organizations in communities with higher levels of total arts dollar activity. Having more arts organizations in a community, in general, tends to raise the budget size for all organizations in these two sectors within the market.

Having more theatres, orchestras, and opera companies competing in a market drives down total expenses for all organizations in these sectors. In other words, more intense competition leads organizations in these sectors to have smaller budgets. The same is true for community-based and general performing arts organizations.

Having more restaurants, bars, or hotels in a market tends to drive down arts and cultural organizations’ total expense levels.

How do socio-demographic characteristics of the community affect performance?

Total expenses are higher for organizations in higher socioeconomic communities.

As the median age in the market increases, total expenses decrease for organizations.

What impact does public funding have on performance?

Overall, state and federal grant activity in the local marketplace had no effect on total expense levels.

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