As a part of their fiduciary duty of care, and many say THE part, nonprofit boards must, yes, must, be at least conversant with and make decisions about the financial health of their nonprofit. Toward that end there are a number of tools all beginning with the Income statement and Balance Sheet. But below these regularly produced and usually briefly discussed tools there are or can be benchmarks and ratios. A word of caution: larger budgeted nonprofits will find benchmarks and ratios more helpful and in different ways than tiny budgeted nonprofits. Alas, in my experience, the majority of nonprofit board members are "number shy". So, perhaps the very clearly defined analysis of benchmarks and ratios will initially prove overwhelming but if the finance committee can first take a look followed by a series of training of the full board, the board members will be up and running and better able to fulfill their fiduciary duty of care.
From the CPA Journal here's an overview of a comprehensive tutorial to "Using Benchmarks and Ratios to Their Fullest"
The requirement that all tax-exempt organizations complete and make available their Form 990s provides access to a wealth of financial information about peer organizations at minimal cost. In some cases, it may be desirable to develop multiple benchmarks. For example, colleges and universities commonly develop benchmarks for both peer and aspirant institutions. Doing so enables organizations to evaluate how well they are doing and what is required to move up to the next level.
Financial ratios can be useful tools for those in charge of monitoring a not-for-profit’s financial position and operations. Ratios are not a goal in themselves, however, and care should be taken in their interpretation. Conventional wisdom regarding desirable levels for some ratios may be unsupported by empirical data. For example, not-for-profits often feel pressured to lower overhead ratios, even though research shows that investment in overhead is often critical to overall not-for-profit mission success.
Each not-for-profit faces unique circumstances, and pursuit of a given strategy may improve one ratio while worsening another. It is also important for boards to understand that resource providers monitor the organization’s ratios. Management should anticipate and be prepared to address the concerns of donors and grantor agencies regarding the organization’s financial position.
To read the whole tutorial: https://www.cpajournal.com/2019/06/05/using-ratio-analysis-to-manage-not-for-profit-organizations/