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The team from Charity Navigator, the nation's largest independent charity evaluator and leading donor advocate, shares their thoughts on emerging nonprofit-sector issues and offers tips to better inform your intelligent giving decisions.

Monday, January 29, 2018

Beginner's Guide to Charity Navigator's Ratings


Charity Navigator offers ratings of more than 9,000 of America’s largest and most-well known charities. Each year millions of Americans use our free service to research organizations before making their charitable contributions. With Charity Navigator you can give confidently knowing your gift will make an impact.

Today we’re unpacking what’s inside our ratings so you can get the most out of them. Whether you’re new to Charity Navigator or just need a refresher this post will help you make the most of the information available on our website.



All of Charity Navigator’s ratings are two-dimensional. They look at an organization’s financial health, as well as their accountability and transparency (or governance) practices. We collect the information for our ratings from the organization’s Form 990, which with they file annually with the IRS, and their websites. 

We’re sharing a little bit more about what these dimensions mean, what our new impact reports say about a charity’s performance, and what’s a “good” rating to help you make the most of the free information available on our website.

FINANCIAL HEALTH

Charities rely on donations from individuals, like you, to provide their services, fund their operating costs, and fulfill their missions. Before you donate, it is important to know that an organization is committed to putting your dollars to work to make the world a better place.

Charity Navigator’s analysts review and evaluate the information provided by charities in their IRS Form 990s to calculate the financial dimension of our ratings. They analyze each charity’s financial health in seven key areas: program expenses, administrative expenses, fundraising expenses, fundraising efficiency, program expense growth, working capital ratio, and liabilities to assets ratio. You can find more about what these metrics mean in our glossary of terms. Generally speaking, analysts are looking at how a charity is spending its funds to direct donors to organizations that are using their funding responsibly. 

A charity needs to spend money on its administrative and fundraising costs to keep the lights on and more money coming in to sustain its mission, but it should be directing a large portion of its funds to its program expenses. Metrics like fundraising efficiency, the working capital ratio, and the liabilities to assets ratio speak to the more nuanced aspects of a charity’s financial practices. These metrics may point to behaviors that are setting a charity up for long-term health, growth, and success or possible hardship down the road. 

You can find a more in-depth explanation of how we calculate charities’ financial health ratings here

ACCOUNTABILITY & TRANSPARENCY

The second dimension of Charity Navigator’s ratings looks at charities accountability and transparency (sometimes called governance) practices. Our analysts evaluate charities’ qualitative policies and explanations for serving their constituents and donors. 

To evaluate this dimension our analysts gather information from charities Form 990s and their respective websites. They score each charity on seventeen metrics which include having an independent voting board, a whistleblower policy, and a donor privacy policy. A full list of the metrics can be found here. These metrics aim to provide more information about a charity’s commitment to ethics and best practices, as well as their actions to make information available and accessible to their constituents and donors.

You can find a more in-depth explanation of how we calculate charities’ accountability and transparency ratings here.

IMPACT REPORTS

You may notice that some of the charity ratings you look at on Charity Navigator include an Impact Report. On November 28, 2017, Charity Navigator--in partnership with Classy, GlobalGiving, and GuideStar--launched a new reporting initiative to provide impact information for more than 2,400 of our rated charities. While this information is not factored into a charity’s rating, it does provide additional insight into the work the organization is doing and the impact they are having. 

You can learn more about this initiative and how to read the information provided in charities’ impact reports here.

SO... WHAT’S A GOOD RATING?

Charity Navigator provides separate ratings for charities’ financial health and accountability and transparency, as well as an overall that combines both scores. It is important to consider all three ratings before making a giving decision.

Charity Navigator considers three and four star organizations to highly-rated. These organizations have shown that they meet, if not exceed, industry standards and are committed to maintaining the best financial and governance practices. A lower star rating can be an indicator of a number of things so we highly recommend speaking with the charity to learn more before making your gift.

We recommend researching all charities before you give to gain a better understanding of how they are spending their funds. You can also use the information you find on our website to start a conversation with the organization you are planning to support. As a donor, you are a partner in their mission. Learn more about how and why they do what they do so you can become an advocate for their mission too.

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