S&P Rating Methodology: Evaluating the Issuer
S&P issues credit ratings about issuers and individual debt issues. They state that credit ratings are opinions about
relative credit risk.
Read the indicated sections of the S&P guide, and respond to these requirements. The page numbers for the booklet
begins with the first text, Industrials and Utilities, on page 17(see the bottom of the page). I’ll use that page
numbering. Please make your responses in the form of complete sentences rather than one-word responses.
Required
1. Page 18. Does S&P believe that it is higher risk or lower risk to be diversified in lines of business that react
similarly to economic cycles?
2. Page 22. Does S&P believe that it is higher risk or lower risk for the company to depend on a single individual,
especially one who may be close to retirement?
3. Page 22. Does S&P believe that it is higher risk or lower risk for the company to be a family company?
4. Page 22. Does S&P audit company financial records? Does S&P use audited data?
5. Page 23. To identify profit potential, does S&P examine pretax or after-tax return on capital? What does S&P use
as a benchmark for earnings, if S&P is concerned about fixed charges like interest on debt?
6. Page 24. What S&P use to measure capital structure?
7. Page 27. How does S&P define the term, Free Operating Cash Flow?
8. Page 32. How does S&P view state-owned enterprises?
