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Monday, August 7, 2017

Metric Mondays #20: Liabilities to Assets Ratio

Metric Mondays #20: Liabilities to Assets Ratio

Today for Metric Monday, we'll take a closer look at our newest financial metric: Liabilities to Assets Ratio.

When developing CN 2.1, a key goal was to better capture the financial capacity and sustainability of a charity. The Liabilities to Assets Ratio metric accomplishes this by evaluating an organization's solvency, and, in turn, its long-term sustainability.  It can signal potential issues within an organization, and additionally, it displays how well the charity is managing this balance in comparison to organizations in the same cause area.  This metric helps donors understand if their donations are being used to service debt rather than servicing the charitable mission.

We calculate a charity's ratio of liabilities to assets by comparing the organization’s total liabilities to total assets in the most recent tax year, and then we assign a score using the conversion scale listed in our Financial Score Conversions and Tables.

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