Since its founding in 2001, Charity Navigator has grown to be one of the most widely recognized rating agencies for not-for-profit organizations. Not-for-profits that rely on charitable contributions can enhance their ability to attract donors by focusing on achieving high Charity Navigator ratings.
U.S.-based not-for-profits that have been in existence at least seven years and meet the following requirements are eligible to be rated: 501(c)(3) status with annual Form 990 filings; revenues of $1 million or more and public support of $500,000 or more for two consecutive years; and administrative and fundraising expenses of at least 1% each of total expenses for three consecutive years.
Not-for-profits rated by Charity Navigator are classified into 11 broad categories, and then 38 causes within those categories. The rating system is tailored to the category and cause classification to ensure that differences among subsectors/missions of not-for-profits are considered.
Charity Navigator uses a four-star rating system that is based on objective input from two sources: the Form 990 and the not-for-profit’s website. Not-for-profits are rated in two areas: financial health and accountability and transparency. Each area is assigned a score based on a 100-point scale and the scores are then combined to determine an overall score. A score of 90 or better results in four stars, 80-90, three stars, 70-80, two stars, and 55-70, one star.
The financial health score uses Form 990 data to measure the following:
- Program, administration and fundraising expenses as percentages of total expenses over a three-year period (with an evaluation of joint cost allocation if applicable)
- Fundraising efficiency (the cost to raise $1) over a three-year period
- Program expense growth over a four-year period
- Working capital ratio over a three-year period
- Liabilities to assets ratio as of the most recent balance sheet date
Each ratio is assigned a point value based on a conversion table which is available on the Charity Navigator website. These are accumulated for an overall financial health score.
Accountability and transparency is evaluated based on criteria from the Form 990 and the not-for-profit’s website, as shown below:
