Rating Methodology v3.1.1
How we calculate charity ratings — and when we don’t
Rating Overview
CharityData NZ rates charities on a scale of 0-100, with letter grades from A+ to F. Our rating combines three equally-weighted components: Financial Health, Governance, and Transparency.
Grade Scale
Financial Health (33%)
Evaluates how effectively a charity manages its finances and deploys resources toward its mission.
Reserve Levels
Charities should maintain reasonable reserves (3-12 months of expenses is typical). Excessive reserve accumulation may indicate funds aren’t being deployed effectively. Too-low reserves may indicate financial instability.
Stable-revenue softening (v3.1.1): when a charity runs below 3 months of reserves but has 3+ years of consistent revenue (coefficient of variation 30% or less) and no detected red flags, the financial-health sub-score is floored at 50/100 instead of being dragged toward zero by the raw reserve formula. Rationale: service-delivery charities with predictable contract or grant income run cash-flow-matched models — low reserves with steady revenue is an operating choice, not financial distress. Any detected red flag disqualifies the softening (anti-gaming).
Revenue Stability
We assess revenue trends over multiple years. Consistent or growing revenue suggests financial sustainability. Volatile or declining revenue may indicate risk. Revenue stability also gates the low-reserve softening described above.
Operating Efficiency
Based on available expense data. Note: NZ charity reporting doesn’t require detailed program/admin breakdowns, so this metric uses available categories (employee costs, other expenses).
Program-spending-ratio API fallback (v3.1.1):where a charity hasn’t been manually categorised but the Charities Services API reports a cost-of-service-provision figure of 50% or more of total expenses, that value feeds an API-fallback efficiency score. The score is capped at 75/100 (vs 100/100 for manually-categorised charities) to reflect the lower-confidence source. Charities that book costs differently keep a null efficiency score and the engine reweights the remaining components — no penalty for accounting choice.
3-Year Weighted History (v3.1.1)
For operating charities, financial health and efficiency are smoothed across the last three years using weights of 60% latest / 30% prior / 10% prior-prior, falling back to 70/30 with two years of data and 100% with one year. This indicates sustained performance rather than a single-year snapshot, so one-off events (a large bequest, property sale, or grant-timing shift) no longer spike or tank the rating. Efficiency is re-normalised against the weight-sum of years that actually have a non-null efficiency score, so a charity with only one year of categorisation data isn’t pulled down by missing years. Endowment foundations keep the single-year branch because their metrics work on a different basis.
Governance (33%)
Assesses board composition, oversight quality, and governance practices.
Board Size & Composition
Effective boards typically have 5-12 members. Too few may indicate insufficient oversight; too many may indicate inefficiency. We also consider tenure diversity.
Officer Disclosure
Charities should disclose complete officer/trustee information including names and roles. Missing or incomplete officer data reduces governance scores.
Overboarding Check
We identify trustees serving on excessive numbers of boards, which may indicate limited ability to provide adequate oversight to each organisation.
Transparency (33%)
Measures how openly a charity shares information with the public.
Filing Timeliness
Charities that file annual returns on time demonstrate better accountability. Late or missing filings reduce transparency scores.
Financial Disclosure Quality
We assess the completeness of financial information provided in annual returns. More detailed disclosures receive higher scores.
Contact Information
Charities providing complete contact details (website, email, phone, address) score higher than those with limited public contact information.
Red Flag Detection
In addition to scores, we identify specific concerns that may warrant further investigation:
- Excessive Reserves - Reserves exceeding 18 months of expenses (or 36 months for fundraising-driven charities with donor-cycle revenue)
- High Admin Costs - Administrative expenses significantly above sector average
- Governance Concerns - Very small boards, overboarded trustees, or missing officer data
- Late/Missing Filings - Annual returns filed late or not at all
- Revenue Decline - Significant multi-year revenue decline
Note: Red flags indicate areas for further research, not wrongdoing. There may be valid explanations.
When We Don’t Rate (v3.1)
Earlier versions of the engine assigned every charity a letter grade, which meant a charity with no balance-sheet data and no actual concerns was floored at F purely for lack of disclosure. From v3.1, three explicit “Not rated” statuses are used instead. In each case the charity’s page still shows the filed figures and any red flags — we just don’t attach a letter to a number we can’t calculate.
Volunteer / community organisation
Revenue under NZ$250,000, no paid staff, and less than 50% government funding. The standard financial template assumes salaried operations and external fundraising; it doesn’t fit a small marae committee, volunteer fire brigade, or community garden trust. We show the figures, but no grade.
Stale data
Most recent annual return is more than three years old. The charity may be inactive or pending deregistration. Until a current return is filed, a rating is not assigned.
Insufficient financial data
Net assets and total assets are both missing from the most recent return, and no prior year within the two-year fallback window has them either. The financial-health score cannot be computed without these figures.
Structural balance-sheet
Liabilities have exceeded assets for two or more consecutive years. That pattern is common and structural for retirement villages (occupation-right-agreement bonds recorded as liabilities), iwi treaty-settlement vehicles (future-obligation accruals), and infrastructure trusts with Crown loan principal. It does not indicate financial distress, but our standard reserve-months scoring template does not apply. A single year of negative equity is still rated normally — it’s the persistence that signals a structural balance sheet.
Anti-gaming guard
A charity with revenue of NZ$1M or more that omits balance-sheet figures is still ratedand receives an “incomplete financial disclosure” red flag. Charities at that scale are required to file proper accounts — non-disclosure cannot be used to slip into the “Not rated” bucket. Detected red flags of any kind also disqualify a charity from the volunteer / community carve-out.
Prior-year balance-sheet fallback: if the most recent return is missing net assets but a return within the last two years has them, the engine reuses the prior year’s balance sheet to compute reserve months. The rating notes which financial year was used.
Profile Analytics
Each charity profile includes computed analytics that provide context beyond the rating score. These are calculated server-side using peer data from the same sector and size band.
Revenue Diversification Score
A Herfindahl-Hirschman Index (HHI) across 6 income sources: government grants, donations, trading/services, investment income, rental income, and other. Charities with 80%+ from a single source are flagged. A normalised 0-100 score indicates diversification (higher = more diverse).
Sector Percentile Benchmarking
Ranks charities on revenue, expenses, surplus, assets, and rating score within their sector and size band. Shows P25/P50/P75 markers so you can see how a charity compares to its peers.
Trend-Based Red Flags
Analyses multi-year financial history to detect 8 trend patterns: revenue decline, expense growth, surplus deterioration, reserve depletion, revenue concentration increase, staff cost spikes, asset decline, and liability growth. Each flag includes severity (low/medium/high) and a sparkline.
5-Year Trend Dashboard
Interactive bar chart showing financial metrics over time. Anomaly detection flags years with > 40% year-on-year changes in any metric, helping identify unusual financial movements.
Staff Cost Benchmarking
Compares staff costs as a percentage of total expenses against sector and size band peers. Shows P25/P50/P75 percentile gauges so you can assess whether staffing costs are typical.
Peer Comparison
Auto-groups charities by sector and size band, then ranks on 5 metrics: revenue, surplus margin, reserve months, rating score, and staff cost efficiency. Shows rank badges and links to top peers.
Methodology Limitations
- Ratings are based solely on publicly filed data - they cannot assess program quality or impact
- NZ charity reporting doesn't require detailed program vs. admin expense breakdowns
- Small volunteer-led charities are intentionally not letter-graded — see the “When We Don’t Rate” section above. Financial figures are still shown.
- Ratings don't capture qualitative factors like mission effectiveness or community impact
- Data may lag - annual returns reflect the previous financial year
Frequently Asked Questions
Data sourced from Charities Services register and annual returns. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@charitydata.co.nz.
For informational purposes only. Not investment advice.