As mentioned in Mendoza’s paper, the need to establish benchmarks in the area of Local Financial

Management is evident and real. Local financial management (LFM) is focused on generating
resources and allocating these to various competing public service demands of the locality. Indeed,
LFM is a significant aspect of good public governance.

The effective management of the various areas of local finance is manifested in the financial
performance of an LGU I terms of liquidity, activity, profitability, leverage, revenue and
expenditure indicators, and asset turnover.

 Liquidity – refers to the ability of the LGU to generate cash for payment of maturing
obligations.
 Activity – refers to the ability of the LGU to use its assets or resources to generate revenues
as reflected in the turnovers of the assets.
 Profitability – refers to the earning power of the LGU in managing its economic
enterprises.
 Leverage – reflects the extent of the LGU borrowing in relation to its assets and equity.

The financial performance of an LGU is, to a large extent, indicative of its observance of good
governance principles. It can be said that a higher level of financial performance suggests more
substantial compliance to the principles of transparency, accountability, predictability, and
participation (Sound Development Management, ADB, 2005). The results of the evaluation of
financial performance and relating the same with the observance of good governance principles
can be used as feedback in the implementation of future activities in the different areas of LFM.

Let us now discuss the first indicator that is the “revenue indicator.” Revenue indicators are
common-size ratios that measure the ability of the LGU to mobilize revenues, whether internally
or through intergovernmental transfers and grants.

Total Revenue Collection

Revenue per capita =
LGU Population
 IRA Revenues
IRA Dependency Ratio =
Total Revenue Collection

The Internal Revenue Allotment (IRA) is a local government unit’s (LGU) share of revenues
from the Philippine national government. Provinces, independent cities, component
cities, municipalities, and barangays each get a separate allotment.

Total Revenue Collection comprises all real property taxes, sand, gravel, and other quarry
resources fees, community taxes levied by each barangay and all other revenue sources by each
barangay.