Forbes evaluates a charity based on its charitable commitment, fundraising efficiency and donor dependency for a given year. These three quantifiable ratios assess a charity's overall financial efficiency. For its annual list of largest U.S. charities, Forbes also factors in the total dollar amount a charity received in private donations that year.Continue Reading
Charitable commitment is defined as the amount of money a charity spent on programs as opposed to management, fundraising and certain types of overhead. Forbes states that for its 2014 list of largest charities, 88 percent was the average percentage of privately donated money going toward program support.
Fundraising efficiency is the percentage of privately donated money left over after subtracting the cost of the fundraising used to get those donations. Forbes considers 70 percent to be the minimum amount acceptable for fundraising efficiency, meaning fundraising efforts cost no more than 30 cents from every dollar raised.
Donor dependency is calculated by comparing private donation revenue against expenses to determine how desperately the charity needed donations in order to break even for the year. If revenue equals expenses, the ratio is 100 percent. Ratios above 100 percent highlight that the charity was in need of more donations to pay for expenses. Ratios below 100 percent show that the charity raised more money than it spent. Forbes notes that 2014's average was 80 percent.
Forbes explains that though its annual list reviews the largest charities in the United States, its assessment methodology works for any charity. Accounting information to calculate an organization's financial efficiency can be found on the charity's IRS Form 990.
Forbes reports that its top five largest charities in 2014 were United Way, Salvation Army, Feeding America, Task Force for Global Health and the American National Red Cross.Learn more about Business & Finance