Financial Score Method

HYNGO listed NGOs are registered under section 12A of the Income-tax Act
HYNGO lists only those education and health NGOs which provide free or subsidised services
NGOs blacklisted by the government or other agencies are highlighted
HYNGO lists only those education and health NGOs which provide free or subsidised services

Financial Score

Indicates financial efficiency and sustainability of individual NGOs
Measures NGO beneficiary spend and the NGO's financial health
Awarded to NGOs with minimum three years of financial data including FY13 or FY14
Calculation is based on seven ratios: only Direct Program Expenses has a weightage of 2
The raw score which totals 80 is converted to a percentage and represented as stars
Scores Stars
ABOVE 70.1%
60.1 to 70%
50 to 60%
40.1 to 49.9%
BELOW 40%

Beneficiary Spend

Measures ratio of amount spent by the NGO on its beneficiaries to total expenses. Weightage is 2

DPE include:

Direct Program Activities: Any expense item that reaches a beneficiary directly or is spent to favour the beneficiary.

Program Staff Cost: Includes salary, honorarium and wages.

Travel Cost: Includes local conveyance, program travel, travel allowance, vehicle hire and fuel costs.

ADJUSTMENTS

a. Depreciation Adjustment: When depreciation is greater than 10% of expenses, it is excluded from the ratio.

b. Transfers to Reserves: Earmarked income received during the year which is unutilised is transferred to reserves through a debit to the I&E account. This amount is excluded while calculating the ratio.

Insufficient details about expenses: NGOs (including large ones) which disclose only abridged accounts do not provide a flavour about the NGO's spending pattern, thereby enabling the NGO to earn a high financial score. We are considering giving low points to such NGOs through a system to be evolved.

While sustained income growth is an important goal for NGOs, it is counterproductive if achieved through high fund raising costs. Points are given based on fund raising cost as a percentage to total costs as per this scale.

Fund Raising Cost to total expenses (%) Points
> 0 - 5 10
6 - 10 7.5
11 - 15 5
16 - 20 2.5
> 20 0
Note: 9 points given to NGOs which do not explicitly disclose Fund Raising Costs.

NGOs maintaining steady long-term growth demonstrate sustainability. This metric calculates 3-year CAGR for income. Negative points on a similar scale for Negative growth. CAGR is for the last three available years; else for two years. Organisation age impacts growth rate; thus two scales are created.

Revenue Growth CAGR

NGOs 15 years or older: Income CAGR (%) Points
> 30 10
21 - 30 7.5
11 - 20 5
6 - 10 2.5
0 - 5 1
NGOs 15 years or older: Income CAGR (%) Points
> 50 10
31 - 50 7.5
21 - 30 5
11 - 20 2.5
0 - 10 1

Measures the ability of an NGO to meet short term liabilities. Calculated by dividing current assets by current liabilities. Most NGOs do not carry liabilities forward at year end and this ratio can be high (100+ or even infinite!)

NGOs 15 years or older: Income CAGR (%) Points
> 30 10
21 - 30 7.5
11 - 20 5
6 - 10 2.5
0 - 5 1

An interesting ratio which shows ability to generate adequate funds to meet expenses or accumulate funds for future use. Interest income, earnings from fixed deposits, bonds and mutual funds, is divided over total income. Points allotted are

Interest income to total income (%) Points
> 30 10
21 - 30 7.5
11 - 20 5
6 - 10 2.5
0.1 - 5 1
0 0

A handy ratio, it measures the financial strength of an organisation. Total assets in the most recent year are divided by average income of three years. NGOs with high scores have built up large assets including fixed assets, investments and cash. On the other hand, low-score NGOs tend to be either new NGOs which are yet to build their income, or NGOs with high levels of loans/accumulated deficits.

Total Assets to Total Income (x) Points
> 2 10
1.1 - 2 7.5
0.51 - 1.0 5
0.21 - 0.5 2.5
0 - 0.2 1

Occasionally, NGOs borrow during set up phase, either sourced from the founders or to meet shortfall in income. Most NGOs do not take on debt.

Loans to Total Liabilities (%) Points
0 10
1 - 10 7.5
11 - 20 5
21 - 30 2.5
> 30 1