CARE undertakes a rating exercise based on information provided by the company, in-house databases and data from other sources that CARE considers reliable. CARE does not undertake unsolicited ratings.

The primary focus of the rating exercise is to assess future cash generation capability of the company and its adequacy to meet debt obligations, even in adverse conditions. The analysis attempts to determine the long-term fundamentals and the probabilities of change in these fundamentals.  

The analytical framework of CARE's rating methodology is divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics.  Besides quantitative factors, qualitative aspects like assessment of management capabilities play a very important role in arriving at the rating for an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer. Rating determination is a matter of experienced and holistic judgment, based on the relevant quantitative and qualitative factors affecting the credit quality of the issuer.

CARE’s ratings are an opinion on the relative ability and willingness of an issuer to repay debt in a timely manner.  CARE considers one day one rupee missed payment as default, whenever CARE is aware of such delay occurring in respect of any of CARE-rated debt instrument/facility. This definition is uniformly applied both for capital market instruments and bank facilities.  

Needless to say that while assigning rating to various types of bank facilities like Bill Discounting, Letter of Credit, Bank Guarantees, etc, CARE takes into account nuances of such facilities while determining missed payment which is consistently applied across all the issuers.

It is important to emphasize the limitations of credit ratings. They are not recommendations to renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. They do not take into account many aspects which influence an investment or lending decision. They do not, for example, evaluate the reasonableness of the issue price, possibilities for capital gains or take into account the liquidity in the secondary market. Ratings also do not take into account the risk of prepayment by issuer. Ratings neither take into account investors’ risk appetite nor the suitability of a particular instrument to a particular class of investors.