The National Futures Association ("NFA") provided guidance to commodity pool operators ("CPOs") and commodity trading advisors ("CTAs") on avoiding financial ratio errors on NFA Forms PQR and PR.
In an Interpretive Notice, the NFA reported that some members have been incorrectly calculating two financial ratios regarding the financial condition of CPOs or CTAs - the Current Asset/Current Liability ratio and the Total Revenue/Total Expenses ("TR/TE") ratio. The NFA advised CPOs and CTAs to remember that:
- ratios must be calculated using the accrual method of accounting;
- current asset balance must include only assets owned by the CPO or CTA;
- current asset balance must include only the CPO or CTA's current assets; and
- TR/TE ratio must be calculated based on the prior twelve months.
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