Charitable organizations' strategies and program-spending ratios

Analysis in this study demonstrates how differences in strategy can be incorporated into evaluations and comparisons of financial statements of charitable organizations. The ratio of program spending to total spending, a metric commonly used in practice to evaluate charities, is the focus of the analysis. The approach involves classifying charities according to how they access markets for donated resources and then using regression analysis to predict an organization's program-spending ratio, given the organization's strategic choice, size, and charitable objective. The predicted ratio is then compared to the organization's actual ratio to identify candidates for further review and investigation. This paper illustrates how considering strategic choice enhances the analysis of financial statements of charitable organizations and informs assessments of organization effectiveness.