Introduction
Overall, the financial well-being of the city of Ponderosa is in good shape. The city of Ponderosa has a substantial cash reserve, which has limited capital construction projects and debt services. Additionally, the city has reported a large cash reserve as noncurrent. One can determine the city of Ponderosa’s financial position by reviewing the financial statements it has reported. Below is a summary of the city of Ponderosa.
Summary of the City
Figure 1 above provides clear insight into the city of Ponderosa. It depicts key indicators, including revenue, expenditure, operational positions, and the debt structure. Based on the given figures, the city’s expenditure exceeds its overall revenue income. It spends 17.87% more than the revenue generated. The situation indicates that there are specific objectives that need improvement to reduce spending. Despite the variation, the city of Ponderosa has a favorable operational position. In other words, it can remain active and perform its roles over a given duration.
Community
Community Overview
The City of Ponderosa is located in the state of California, along the shore of Lake Pristine. The city has a population of 29,652 people, with a growth rate of 61%. It also has 9,884 families with an average of 3 people per family. The total number of males in the city is 15,336, while the number of females is 14,316.
The city has a diverse population, with Whites comprising the most significant percentage. Over the years, the city has relied heavily on tourism, accounting for approximately 80% of its jobs. The overview of the town is in Table 1 below.
Table 1: Ponderosa’s Demographics
Strengths
One of the city’s strengths is its thriving tourism industry. According to the case, the tourism industry is the primary sector in Ponderosa, accounting for approximately 80% of the jobs in the area. Many tourists visit the city to swim, boat, and fish in Lake Pristine. Other strengths include its proximity to the state of Nevada and its role as a “gaming corridor” that supports its tourism industry. The “gaming corridor” features five casinos and restaurants that attract numerous visitors from other areas.
Weaknesses
One area where the city of Ponderosa could improve is its ability to offer seasonal employment opportunities to its residents through the tourism industry. The case study informs that the tourism industry “peaks in the summer as tourists come to swim, boat, and fish the lake or hike and bike the scenic trails” (p. 1). However, during the winter, transportation into the city is always affected, hindering tourists from accessing it.
Opportunities/Threats
The city’s opportunity lies in investing in year-round employment for its residents. Since the city’s tourism industry only booms during the summer, its authority should invest in its infrastructure to ensure that tourists can access it throughout the year.
Recommendations and Basis for the Assessment
One recommendation the city should consider is maintaining a strong financial position. Even though the city has more expenses than revenue, its financial position is good because it has a large cash reserve saved as a noncurrent asset.
Revenue
Revenue Structure Overview
The city of Ponderosa has a revenue of $23,821,654, with the most significant portion coming from taxes and assessments ($15,788,535), and the smallest portion coming from fines, forfeitures, and penalties. Although neighboring cities contribute to the city of Ponderosa’s revenue, it has the highest due to its booming tourism industry. It has above-average taxes per capita, as shown below in Table 2:
Table 2: Overview of the Revenue Structure
Strengths
One strength of the city’s revenue is the availability of property taxes (taxes and assessments), contributing about 66.3%.
Weaknesses
One area that the city could improve is the seasonality of the tourism industry, which results in lower income during certain seasons, such as winter.
Opportunities/Threats
Since the city attracts many tourists from all over the state and beyond, there is an opportunity for it to increase its charges for most of the services it offers. Additionally, it can shift some government costs to the tourism industry, thereby increasing revenue.
Recommendations and Basis for the Assessment
One recommendation that this city should implement is to conduct comprehensive research on its sources of revenue, especially charges for services, taxes, assessments, licenses, and permits. As Stieg (2021) notes, generating more revenue would also mean that employees in the tourism industry would receive additional salaries and wages. In turn, this will push the city towards growth and more revenue.
Expenditures
Expenditures Overview
When compared to other cities in the state, Ponderosa records higher expenditures. The highest expenditures are in public safety. This high expenditure on public safety is primarily due to the large number of tourists visiting the city. Although they generated a high revenue, they spent more ($28,079,615), as shown in Table 3.
Table 3: Overview of the Expenditures
Strengths
Although it recorded more expenditures, most of these went to public safety, which helped attract more tourists. Traveling is often associated with risk, and guaranteeing tourists’ safety would significantly entice them (Zou & Yu, 2022). Therefore, with time, the city will benefit from this long-term investment.
Weaknesses
One area for improvement that the city has concerning its expenses is that it is higher than the revenues; hence, it has a deficit (4,257,961).
Opportunities/Threats
The city has an opportunity to reduce its expenditures to match its revenue. If it fails to do so, the expenditures will continue to rise, and the deficit will be significant.
Recommendations and Basis for the Assessment
One recommendation that the city should consider is to conduct a comprehensive investigation into why its costs are rising and how they can be reduced.
Budget Solvency
Budget Solvency Overview
Initially, the city’s budget, with a positive balance of $96,136, was revised to a projected loss of $210,908. For any business to achieve long-term success, it must remain solvent. Solvency refers to “the possession of assets in excess of liabilities, or more simply put, the ability for one to pay their debts. This is an important metric for a business” (Billings, n.d). In this instance, Ponderosa has a low capital-debt ratio compared to other cities in the state. This is indicated below:
Debt Ratio = Total Liabilities / Total Assets
Govt Funds Debt Ratio = 71,938,699 / 150,922,659 = 0.477
Total Primary Debt Ratio = 74,360,617 / 161,614,109 = 0.460
Strengths
One strength of the city is that it has a lower debt burden than other cities in the state, in addition to its net solid assets and fund balances.
Weaknesses
One weakness of Ponderosa is that although it has a lower debt burden than the other cities, it still has a significantly high burden.
Opportunities/Threats
The city has an opportunity to generate more income from the tourism industry and reduce its cost to keep the debt burden as low as possible.
Recommendations and Basis for the Assessment
One recommendation is that the city develop strategies to reduce general government costs and identify other areas that can be cut to mitigate rising expenditures.
Long-Term and Short-Term Solvency
Overview of Solvency
The commonly used ratio in measuring solvency is the debt-to-equity ratio. The debt-to-equity ratio measures an organization’s total liabilities as a percentage of its shareholders’ equity. It measures the extent to which a business organization is financed by debt relative to equity. The other ratio is the interest coverage ratio, which covers an organization’s ability to meet its interest payments. Lastly, an organization uses the current ratio to measure its solvency (Horobet et al., 2021). The current ratio measures an organization’s ability to meet its short-term financial obligations.
Table 4: Overview of Solvency
Strengths
Looking at the city’s long-term solvency, the authorities will measure its operating profits to determine if it meets both long-term and short-term solvency or one of them.
Weaknesses
Measuring the long-term and short-term solvency will require the analysis of the whole city.
Opportunities/Threats
The threat the city is facing is the risk of investing a significant amount of money into tourism and other activities, with the expectation that it will generate more profits.
Recommendations and Basis for the Assessment
The city should continue to analyze its long-term and short-term solvency and identify areas for improvement or strengthening.
Conclusion
In conclusion, although the city of Ponderosa remains in good financial shape, recent years have been challenging. The city needs to increase its coverage ratio and work to make its business operations break even and independent of other cities. The authorities should also investigate why Ponderosa has higher expenditures than other cities in the state. It should also make efforts to ensure that the employment it offers its residents is available year-round, rather than seasonal.
References
Billings, J. (n.d.). What is solvency? Web.
Horobet, A., Curea, S. C., Smedoiu Popoviciu, A., Botoroga, C. A., Belascu, L., & Dumitrescu, D. G. (2021). Solvency risk and corporate performance: A case study on European retailers. Journal of Risk and Financial Management, 14(11), 536. Web.
Stieg, C. (2021). People actually are happier when they make more money: Wharton study. CNBC. Web.
Zou, Y., & Yu, Q. (2022). Sense of safety toward tourism destinations: A social constructivist perspective. Journal of Destination Marketing & Management, 24, 100708. Web.