what is the valuation methodology that the credit rating agencies follow?
1 Answer(s)
sanchita.das
Hi Aleek,
As you might be well aware that there are many credit rating companies and Moody's is one of them. Here is the way how Moody's does analisys:
Moody's analyzes all relevant risk factors and viewpoints in arriving at a rating opinion. Several analytical principles guide the process, including:
1. Focus on the long term - Moody's analytical focus is on fundamental factors that will drive an issuer's long-term ability to meet debt payments, such as major economic downturns, a radical change in management strategy, or major regulatory developments. The ratings are not intended to ratchet up and down with business or supply-demand cycles or to reflect short-term market movements.
2. Emphasis on stability and predictability of cash flow - One of Moody's main analytical concentrations is on understanding the drivers of cash flow generation and, in particular, the predictability and sustainability of cash flow. Moody's will conduct financial analysis to determine an issuer's cash flow resilience in the event of an economic downturn.
Specific risk factors likely to be weighed in a given rating will vary considerably by sector. Detailed methodology reports for all major sectors that Moody's follow can be obtained in the Rating Methodologies section of Moody's site.
Feb 23 2014 09:54 PM
As you might be well aware that there are many credit rating companies and Moody's is one of them. Here is the way how Moody's does analisys:
Moody's analyzes all relevant risk factors and viewpoints in arriving at a rating opinion. Several analytical principles guide the process, including:
1. Focus on the long term - Moody's analytical focus is on fundamental factors that will drive an issuer's long-term ability to meet debt payments, such as major economic downturns, a radical change in management strategy, or major regulatory developments. The ratings are not intended to ratchet up and down with business or supply-demand cycles or to reflect short-term market movements.
2. Emphasis on stability and predictability of cash flow - One of Moody's main analytical concentrations is on understanding the drivers of cash flow generation and, in particular, the predictability and sustainability of cash flow. Moody's will conduct financial analysis to determine an issuer's cash flow resilience in the event of an economic downturn.
Specific risk factors likely to be weighed in a given rating will vary considerably by sector. Detailed methodology reports for all major sectors that Moody's follow can be obtained in the Rating Methodologies section of Moody's site.