About This Guide

Senior executives need a clear way to measure and communicate their organization's overall financial health. The Composite Financial Index (CFI) provides this by combining four key financial metrics into a single, comprehensive score. This guide shows you exactly how to calculate your CFI in four straightforward steps.

Overview

Think of CFI as a financial health scorecard that combines four vital signs of your organization's financial condition: resource sufficiency, debt management, asset performance, and operating results. The calculation process converts these individual measurements into comparable values, weights their relative importance, and produces a single score between -4 and 10.

Step 1: Calculate Your Core Ratios

Start by calculating these four fundamental ratios from your financial statements:

Primary Reserve Ratio

Formula: Expendable Net Assets / Total Expenses
Purpose: Shows how long you could operate using only your flexible resources
Example: A ratio of 0.4 means you could operate for about 146 days on current reserves

Net Operating Revenues Ratio

Formula: Unrestricted Operating Income / Total Unrestricted Revenue
Purpose: Indicates if your current operations are living within their means
Example: A ratio of 2% suggests modest financial sustainability

Return on Net Assets Ratio

Formula: Change in Net Assets / Total Net Assets
Purpose: Reveals if you're financially better off than last year
Example: A ratio of 6% indicates healthy overall return

Viability Ratio

Formula: Expendable Net Assets / Long-term Debt
Purpose: Measures your ability to cover debt with existing resources
Example: A ratio of 1.25 shows sound debt coverage

Step 2: Convert to Strength Factors

Next, put these ratios on a common scale using this conversion table:

Ratio	Score 1 (Weak)	Score 3 (Healthy)	Score 10 (Strong)
Primary Reserve	0.133x	0.4x	1.33x
Net Operating Revenues	0.7%	2%	7.0%
Return on Net Assets	2.0%	6%	20%
Viability	0.417x	1.25x	4.17x

To convert your ratio to a strength factor:

Divide your actual ratio by the "Score 1" value
If result exceeds 10, use 10
If result falls below -4, use -4

Step 3: Apply Weighting Factors

Different aspects of financial health carry different importance. Apply these weights:

If you have long-term debt:

Primary Reserve: 35%
Net Operating Revenues: 10%
Return on Net Assets: 20%
Viability: 35%

If you have no significant debt:

Primary Reserve: 55%
Net Operating Revenues: 15%
Return on Net Assets: 30%
Viability: 0%

Step 4: Calculate Final CFI

Here's an example using the fictitious Performing Arts Center of Metropolis:

Ratio	Actual Value	Strength Factor	Weight	Contribution
Primary Reserve	0.74x	5.56	35%	1.95
Net Operating Revenues	2.28%	3.26	10%	0.33
Return on Net Assets	4.78%	2.39	20%	0.48
Viability	1.28x	3.07	35%	1.07
Final CFI				3.83

Understanding Your Score

A CFI of 3.83 indicates relative financial health. Here's how to interpret different CFI ranges:

Below 1: Shows financial stress

Limited reserves
Weak operating performance
May struggle with debt obligations

Around 3: Indicates financial health

Adequate reserves
Sustainable operations
Manageable debt levels

Above 7: Demonstrates exceptional strength

Substantial reserves
Strong operations
Significant debt capacity

💡 Remember!

CFI should be viewed alongside mission achievement. A high score with poor mission fulfillment might indicate underutilization of resources, while a temporarily lower score during strategic investments might reflect healthy organizational development.