Decoding an NGO’s Financial Statements: A Donor’s Guide to Making Informed Giving Decisions

As a donor, you want your contribution to create a meaningful impact. But how can you be confident that the NGO you support is managing its resources effectively and transparently? While mission statements and field stories are compelling, it’s the financial statements that often reveal the most about an NGO’s operations, efficiency, and accountability. Click here if you missed our previous blog on the key components of nonprofit financial statements, giving you a foundational understanding of what they are and how they’re structured.

We now shift focus from what nonprofit financial statements contain to how to interpret them. From identifying signs of financial health to spotting potential concerns, we walk you through key indicators that can help you assess an NGO’s transparency, stability, and long-term viability. At HelpYourNGO, we simplify this process for you. By standardising and analysing financial information from hundreds of NGOs, we enable donors to make informed donation decisions. Here’s how you can decode nonprofit financial statements – without needing a finance degree.

1. Income and Expenditure Statement: Is the NGO Living Within Its Means?

Think of this as the NGO’s profit and loss statement. It tells you:

• How much income does the NGO earn (through donations, grants, etc)
• What it spent money on (programs, salaries, admin, fundraising, etc)

What to look for:

• A healthy NGO spends at least 75% of its funds on programs, not on admin or fundraising.
• Consistent income and spending trends over 3–5 years are a good sign of sustainability.
• Sudden spikes or drops in the surplus/deficit? Look for explanations in the annual report or notes.

How HelpYourNGO helps:
We standardise financials across years and break down expenses into Program, Admin, and Fundraising heads — so you can easily see how your donations are used. One of the most powerful insights we provide is the percentage spent on beneficiaries, prominently displayed on every NGO profile hosted on our platform. This figure is calculated after standardising and analysing each NGO’s audited financials, giving you a clear picture of how much of your contribution goes directly towards the end beneficiaries.

 

2. Balance Sheet: Is the NGO Financially Stable?

The balance sheet shows the NGO’s assets (what it owns) and liabilities (what it owes), and overall financial health.

What to look for:

• A positive net worth (total assets > total liabilities) indicates good financial health.
• Is the corpus or reserve fund growing over time? A healthy reserve indicates long-term planning and financial discipline.
• Are there sufficient liquid assets to meet short-term obligations? An imbalance here could suggest cash flow constraints.

How HelpYourNGO helps:
We present a 3-year trend of key balance sheet indicators and help you assess whether the NGO is building financial sustainability or struggling to stay afloat. We also highlight material shifts in assets or liabilities — whether it’s an investment in infrastructure or growing long-term debt so that donors can view not just the present snapshot, but the direction in which the NGO is moving.

 

3. Receipts and Payments Statement: Where Did the Money Flow?

This is the cash flow statement. It shows actual cash transactions – money coming in and going out, helping you assess liquidity and operational efficiency.

What to look for:

• Does the NGO have a consistent inflow of funds?
• Are they able to meet short-term expenses easily?
• Big gaps between cash in and out may raise red flags unless explained.

How HelpYourNGO helps:
Understanding cash flow can often be challenging, especially when NGOs follow different reporting formats. We simplify the receipts and payments data to give donors a clear view of an NGO’s liquidity and fund utilisation patterns.

 

4. Administrative Expenses: Are They Keeping Overheads in Check?

While administrative spending is necessary to keep any organisation running, donors often want to understand whether these costs are proportionate and well-managed.

What to look for:

• Admin expenses under 20% of total expenses are generally acceptable.
• Investments in fundraising costs should result in significantly higher donations and outreach.
• Are expense heads clearly disclosed? A lack of transparency or frequent reclassification of costs could be a red flag.

How HelpYourNGO helps:
We calculate and display admin-to-program expense ratios so you can quickly assess if the NGO is efficient or top-heavy. Detailed schedules are reviewed to flag inconsistencies or a lack of clarity in expense disclosure.

 

5. Auditor’s Report and Notes to Accounts: Are There Any Red Flags?

These sections reflect the independent auditor’s view on whether the financial statements fairly present the organisation’s accounts.

What to look for:

• A clean audit report (no qualifications or concerns) is a positive sign.
• The Notes to Accounts explain accounting policies and any significant events like related party transactions or contingent liabilities. Take the time to read them.

How HelpYourNGO helps:
We review the audit opinions and include any remarks or red flags in our NGO profiles, so you don’t have to read through the fine print to spot compliance issues, if any.

 

Common Red Flags to Be Aware Of:

• Excessive admin costs without explanations
• Loans to trustees or related parties – a governance concern
• Missing comparative figures (prior year data)
• Auditor’s reservations or qualifications
• Overdependence on one donor affects financial stability
• Repeated compliance lapses

 

How HelpYourNGO Simplifies Financial Data for You:

Reading and comparing nonprofit financial statements can be time-consuming and technical. HelpYourNGO bridges that gap by:

• Applying 25+ standardised financial parameters across all NGOs
• Presenting 5-year trends in income, expenditure, and surplus/deficit
• Calculating Key efficiency ratios like program expense %, admin overhead, and fundraising cost
• Curated lists of trustworthy NGOs based on robust financial and programmatic evaluation

Whether you’re making a one-time donation or planning long-term support, our tools help you choose wisely and confidently.

 

Bonus: Give Smarter with hynGO

Want to create a long-term impact with your donation? Explore hynGO — a unique giving solution:

• Builds an endowment-style fund for trusted NGOs
• Enables long-term funding for core programs
• Offers a one-click, multi-year benefit with complete transparency

With hynGO, your support extends beyond a one-time donation; it helps build lasting change.

 

Final Thought:

Donating is not just about generosity — it’s also about responsibility. Understanding how your chosen NGO manages its finances ensures your money is truly making a difference. You don’t need to be a finance expert to assess an audit report, just someone willing to look beyond the brochures and dig into the numbers. Remember to look at trends over a few years, not just a single report, to get a more complete picture of an NGO’s performance and sustainability.

At HelpYourNGO, we showcase detailed financial information for the past 3 years across all listed NGOs. Visit helpyourngo.com to explore NGOs that align with your values and make every rupee count.

To know more about our products and services, feel free to connect with us at info@helpyourngo.com.

Regards
Tushar Hemrajani
Senior Research Analyst, HYNGO