What is the methodology used by S&P in determining credit ratings?
The methodology employed by Standard & Poor's (S&P) for credit ratings encompasses a comprehensive and rigorous process. S&P evaluates various factors to assess the creditworthiness of an entity or instrument. This involves analyzing financial statements, industry trends, and economic conditions reviewed by experienced analysts. Quantitative and qualitative research is conducted to measure credit risk and potential default probabilities. S&P rates the issuer's capacity to meet financial obligations, given the prevailing circumstances. Factors such as cash flows, leverage, operating performance, and management systems are evaluated. S&P also takes into account relative risks to determine a rating, comparing an issuer against peers and sector benchmarks. Transparency, independence, and continuous review are integral to S&P's credit rating methodology, providing reliable and objective insights to market participants.
Answered Nov 2, 2023
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