Rating Methodology

Charity Intelligence's mission is to help donors answer their key questions and to provide information to allow better informed giving decisions.  Donors have told us that they want a quick summary of the charities that they are interested in.  To provide this summary, we have created a star rating that ranges from 0 to 4 stars. All of the information that goes into a charity star rating is available to donors if they wish to dig into the details; however, these star ratings will give donors an initial place to start.

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Charities are rated based on:

40% Results Reporting - a charity's grade on the quality of its reports, its social results reporting
20% Financial Transparency - audited financial statements provided
20% Need for Funding - cash and investments relative to what it cost to run charity programs for 1 year, called "program cost coverage"
20% Cost-efficiency - 15% for fundraising costs and 5% for administrative overhead (within a reasonable range of 5%-35% for total overhead)
 

Components of Ci's Star Ratings

Star Ratings Components

 

Charity Intelligence's star ratings are also affected by our Impact Rating as outlined below.

 

Results Reporting (40% of Star Rating)


Results reporting has the largest weight in Charity Intelligence's star rating. To us, this is an indicator of a charity's accountability to donors, reporting information about its work, its clients, the results it achieves. Charities are rated based on the public reporting of their activities, outputs, and outcomes. 

It is important to emphasize that this score does not assess the strength of the charity’s strategy, the quality of its activities, the level of its outputs or the impressiveness of its outcomes; rather, it grades whether enough information is disclosed such that any reader could make those assessments

The results reporting score is a letter grade based on the relative scoring of the charity compared to all other Canadian charities analyzed.  Please click to read more information on Social Results Reporting.

The letter grade on the charity report is a charity's results reporting relative to all other charities. It is benchmarked. The very best reporting charities get an A+; the worst charities get an F grade. This is relative to the reporting of all charities assessed.

Charity Intelligence assigns letter grades according to the following distribution:

SRRS Distribution

 

Financial Transparency (20% of Star Rating)

Charities are assessed a rating based on their transparency in providing complete audited financial statements, including the financial notes and accounting policies, to the public.  If the most recent statements are not available within 9 months of the charity's year-end, the transparency score is reduced by 1.

3 = Full marks: Audited financial statements for at least the last 2 years posted on the charity's website.
2 = Audited financial statements for the most recent year posted on the charity's website.
1 = Charity provided Charity Intelligence with its audited financial statements upon request by email or telephone.
0 = No marks: Charity did not provide Charity Intelligence with its audited financial statements upon request. Financial statements were provided by Canada Revenue Agency.



Program Cost Coverage (20% of Star Rating)

Program cost coverage is a financial ratio tool for assessing a charity’s need for funding.  It compares funding reserves (liquid assets of cash, cash equivalents andinvestment securities, less interest-bearing liabilities) relative to program costs.  The program cost coverage ratio is calculated by dividing the year-end funding reserves (excluding donor-endowed funds) by the program costs for the most recent year less 5% of donor-endowed funds (or the disbursement rate disclosed by the charity), expressed as a percentage.

Charities receive full rating for their need for funding if their program cost coverage ratio is below 300%, meaning that they have less than 3 years’ worth of funds available to fund program costs. Charities with program cost coverage over 500% receive no points for this metric.

 

Fundraising Costs (15% of Star Rating)

Ci presents all fundraising costs gross of fundraising expenses.  Lotteries and business expenses are not included in fundraising ratios.  Total fundraising costs are presented as a percent of donations plus special events revenue. Charities receive top points for fundraising costs below 15%.  Charities with fundraising ratios above the initial CRA cut-off of 35% receive no points for this metric.


Administrative Costs (5% of Star Rating)

The administrative cost ratio is calculated by taking the charity’s total administration costs divided by its total revenues less investment income. Charities require a basic level of administrative costs to operate effectively.  If these costs are not adequate, the charity risks being less effective.  Given this, charities with administrative cost ratios less than 2% lose 1 out of 5 available points for this metric.  Charities with administrative cost ratios between 2% and 12.5% (comprising roughly 2/3 of all charities examined by Ci) receive full points for this metric.  Charities with administrative costs above 22.5% receive no points for this metric.


Calculation of Star Ratings

Each of the above metrics is weighted to determine the overall charity score.  These final scores are assigned star ratings based on roughly 15% of charities being 4-Star charities, 20% being 3-Star, 40% being 2-Star, 20% being 1-Star, and 5% being 0-Star charities.  In order to qualify for 3- or 4-Star ratings, charities must also pass the following hurdles:

  3-Star 4-Star
Social Results Reporting In top 50% of charities In top 33% of charities
Financial Transparency Rated 1 or above Rated 2 or above
Program Cost Coverage Below 500% Below 300%
Fundraising Cost Ratio Below 42% Below 35%
Administrative Cost Ratio Below 40% Below 30%

 

The current distribution of star ratings for all charities rated by Charity Intelligence is a bell curve with the majority at 2 stars  - most charities are rated average.  

Star Rating Distribution


Impact Rating

To assess impact, Charity Intelligence uses what is known as Social Return on Investment (SROI), which is a ratio that measures the amount of value created per dollar donated. Our Impact Rating assesses charities based on both their demonstrated impact as well as the quality of the data available to assess impact. Additional details on our Impact Ratings can be found here.

Ratings fall into 4 categories based on the combination of demonstrated impact and data quality: High, Good, Fair & Low impact.

Impact ratings affect overall star ratings based on the following:

If Impact is High, overall star rating is increased by 1 star (4-star charities stay at 4 stars).

If Impact is Low, overall star rating is decreased by 1 star (0-star charities stay at 0 stars).


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