Analyst Reports Methodology

In the past, comparative analyses of charities' finances have tended to be superficial, largely because of a lack of information. Since 1998, GuideStar has been recording financial data from every Form 990 that public charities file with the Internal Revenue Service.

Using this vast database, a GuideStar Analyst Report describes a charity's finances by examining its financial information over time and by comparing these numbers with those of nonprofits in appropriate peer groups. The report also gives a narrative description of the organization's mission, program accomplishments, and management.

Form 990 and Longitudinal Information

Financial data in a GuideStar Analyst Report are taken solely from a nonprofit's Forms 990. For this reason, GuideStar Analyst Reports will not be available for charities that file Form 990-EZ or for those that do not file a 990 at all.

In its first versions, the GuideStar Analyst Report for a specific nonprofit will include a two- or three-year summary of key financial numbers and ratios for that charity. As the database grows, each report will expand to show five years' worth of financial information.

Peer-Group Comparisons

In addition to longitudinal analysis, a GuideStar Analyst Report includes peer-group comparisons. An organization is assigned to a peer group according to the National Taxonomy of Exempt Entities (NTEE) classification system, a system developed by the National Center for Charitable Statistics at the Urban Institute. The Internal Revenue Service uses NTEE codes for generally classifying a nonprofit as, for example, an art museum or an AIDS research organization.

Peer-group comparisons are important parts of the financial analyses because different types of organizations have different financial realities. Typically, evaluators compare the American Cancer Society with, for example, the Nature Conservancy, looking at what percentage of their budgets are devoted to program activities and to fundraising. GuideStar research shows, however, that these organizations are very different in the programs they perform, the financial reserves they require, and the way they go about supporting their activities.

Several factors can influence the quality of a peer group defined on the basis of NTEE codes. First, some NTEE categories—such as food banks—contain homogeneous organizations, whereas others encompass organizations that perform very different services. For example, People for the Ethical Treatment of Animals and a local Society for the Prevention of Cruelty to Animals are both correctly classified in the NTEE system as animal protection and welfare organizations, but their activities are largely dissimilar.

Second, as an organization ages, its primary mission may change, although the IRS does not revisit the NTEE code assigned to that organization. Third, an organization may simply be miscoded or defy accurate classification because of an unusual mission.1

In general, though, the peer-group comparisons provided in the GuideStar Analyst Reports will be much more useful than comparisons that are typically made. Comparing a charity's financial numbers and ratios to those of organizations that are similar in size and program activities will yield a much better understanding of that nonprofit's financial circumstances.

A Note on Ratios

GuideStar neither ranks nor judges any charity's observed ratio values. GuideStar Analyst Reports present all ratios in the context of each nonprofit's unique circumstances, allowing subscribers to draw informed opinions. In general, GuideStar recognizes that ratios are usually more valuable for understanding a charity's progress from year to year than for comparing it against a general standard or to other organizations.

GuideStar urges its users to consider such factors as an organization's size, age, audience, location, and program services when considering ratios. GuideStar Analyst Reports look at program ratios, fundraising ratios, contribution and grant ratios, debt ratios, investment income ratios, and program services ratios.

More on ratios

  • 1 An organization can change its NTEE code by signing up with GuideStar and completing or updating the GuideStar Information Form. Each GuideStar Analyst Report includes a narrative section where the organization can explain its financial history.