1. What is an Operating Reserve Ratio Calculator?

Definition: This calculator determines the operating reserve ratio (ORR), which measures an organization's financial resilience by comparing reserve funds to annual expenses.

Purpose: It helps real estate professionals, property managers, and nonprofit organizations assess their financial health and sustainability.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( ORR \) — Operating Reserve Ratio (dimensionless)
• \( R \) — Reserve funds (currency, e.g., USD)
• \( E \) — Annual expenses (currency, e.g., USD)

Explanation: The ratio shows how many months of operating expenses could be covered by reserve funds if income stopped.

3. Importance of Operating Reserve Ratio

Details: A healthy ORR (typically 3-6 months) ensures financial stability during economic downturns, unexpected expenses, or revenue shortfalls.

4. Using the Calculator

Tips: Enter your total reserve funds and annual operating expenses in USD. Annual expenses must be greater than 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a good operating reserve ratio?
A: Typically 0.25-0.5 (3-6 months of expenses), but varies by organization type and risk tolerance.

Q2: Should reserves be included in the annual expenses?
A: No, reserves should be separate from regular operating expenses in this calculation.

Q3: How often should ORR be calculated?
A: At least annually, or whenever significant financial changes occur.

Q4: What's included in reserve funds?
A: Liquid assets designated for emergencies, not restricted funds or endowments.

Q5: How can I improve my ORR?
A: By increasing reserves through surpluses or reducing unnecessary expenses.