S&P Standard and Poor's - Corporate Finance Institute

Standard & Poor's is an American financial intelligence company that operates as a division of S&P Global. S&P is a market leader in the provision of financial ... Home›Resources›NEWFixedIncome›S&P–StandardandPoor’s S&P–StandardandPoor’s AcompleteoverviewofallStandardandPoor'sproducts Writtenby CFITeam UpdatedOctober13,2022 WhatisStandardandPoor’s(S&P)? Standard&Poor’sisanAmericanfinancialintelligencecompanythatoperatesasadivisionofS&PGlobal.S&Pisamarketleaderintheprovisionoffinancialmarketanalysis,particularlyintheprovisionofbenchmarkandinvestableindicesandcreditratingsforcompaniesandcountries. TheS&PGlobaldivisionincludes: GlobalRatings GlobalMarketIntelligence DowJonesIndices GlobalPlatts Tolearnmore,launchourfreefinancecourses! HistoryofStandardandPoor’s TheoriginofStandardandPoor’sbeganin1860.HenryVarnumPoorpublishedabookcalled“HistoryofRailroadsandCanalsintheUnitedStates.”ThebookprovidedacomprehensivecoverageoftheoperationalandfinancialstateofrailroadcompaniesintheU.S.In1868,HenryVarnumPoorandHenryWilliamPoorcreated“H.VandH.W.PoorCo.,”whichpublishedtwoguidebooksthatwereupdatedannually. TheStandardStatisticsCompanywasestablishedin1906,providingfinancialinformationregardingnon-railroadcompanies.TheStandardStatisticsCompanypublisheditsfirst stockmarketindicatorin1923,basedon233companies. Standard&Poor’scameintobeingin1941whenPoor’sPublishingandtheStandardStatisticsBureaumerged.Itincreasedthenumberofcompaniesonthebasisofwhichthestockindexwascomputedto416. Laterin1966,TheMcGrawCompaniesacquiredStandard&Poor’sCorporation,nowknownasS&PGlobal,afteritrebrandedin2016. BranchesofStandardandPoor’s TheStandardandPoor’sGlobaldivisionincludesthefollowingdivisions: 1.GlobalRatings S&PGlobalRatingsisamarketleaderinthefieldofcreditriskresearch.GlobalRatingscoversvariousindustries,assetclasses,geographies,andbenchmarksforthebenefitofmultipleinvestors.Asof2016,italreadyissued1.2millioncreditratingsoncorporations,securities,financialsectors,andgovernmentsandheldrateddebtworth$47.5trillion. WhatistheS&PCreditRatingProcess? TheS&PGlobalRatingscreditratingprocessisasfollows: Contract–Theissuingcompanyrequestsacreditratingandformalizestherequestbysigninganengagementletter. Pre-Evaluation–S&PGlobalRatingscreatesateamofanalystswhoreviewallrelevantinformation. ManagementMeeting–Theanalystteammeetsthemanagementteamtodiscusstheinformationprocuredinstep2. Analysis– Theinformationisevaluatedbytheanalysts.Onthebasisofthisanalysis,aratingisproposedtotheratingcommitteebytheanalystteam. RatingCommittee–Theratingcommitteevotesonthecreditrating,basedontherecommendationoftheanalystteamafterreviewingthesame. Notification–Theissuingcompanyisprovidedwithapre-publishingrationaleforthecreditratingassignedtoitsothattherationalecanbefact-checked. Publication–Apublicratingispublishedinapressreleaseandatwww.standardandpoors.com SurveillanceofRatedIssuers&Issues–Surveillanceiscarriedouttoupdatethecreditratingtokeepitrelevant,i.e.,todowngradeorupgradetheratingifrequired. PerformanceReview–S&PGlobalRatingsconductsstudiestomeasuretheperformanceandaccuracyoftheircreditratings.Thisprocessinvolvestrackingtransitionsanddefaultratesandmeasuringhowmuchcreditratingshavechangedoveraperiodoftime. Theperformancereviewisusedbyvariousagenciestorefinetheiranalyticalmethodsforformingratingsopinions.Theperformancereviewalsoallowsindividualsandinvestorstoseetherelativevolatility/stabilityofcreditratings. Tolearnmore,launchourfreefinancecourses! 2.DowJonesIndices S&PDowJonesIndicesis theworld’slargestsourceofindicesandisusedbyvariousclassesofinvestorstofindglobalinvestmentopportunities.In2012,Standard&Poor’smergeditsindexoperationswiththoseofDowJonesIndexesandthuscreatedanabsolutemarketleaderintheindustry. S&P500Index TheS&P500index–thefirststockmarketindextobepublisheddaily–waslaunchedin1957.ItisaleadingindicatorofthehealthoftheU.S.stockmarket,despitethefactthatitonlyincludeslarge-capcompaniesbecauseitincludesalargepartofthetotalworthofpublicly-tradedAmericancompanies. HowistheS&P500IndexCalculated? ThefollowingstepsareundertakentocalculatetheS&P500: Step1:Selectingthecompanies–TheS&P500indexisbasedon500stocksbelongingtocompaniesthatareconsideredtobeleadingindicatorsoftheAmericanequitymarket.Itisameasureofthevalueofthesharesbelongingtothelargest500companies(accordingtomarketcapitalization)ontheNasdaqComposite/NewYorkStockExchange. The500companiesonwhichtheS&P500isbasedarechosenbytheIndexCommittee.TheIndexCommitteeiscomprisedofeconomistsandanalystsemployedbyStandard&Poor’s.Thecompaniesareselectedonthebasisof: Liquidity Marketsize industry Step2:Calculation–TheformulaforcalculatingtheS&P500isasfollows: Index=SumoftheAdjustedorWeightedMarketCapofAllS&P500Stocks/IndexDivisor Indexdivisor:TheindexdivisorisaproprietaryfigurewhichhasbeendevelopedbyS&P’s.Multiplesourcespegtheindexdivisorat8.9billion.ItensuresthattheS&Pindexisnotaffectedbynon-economicfactors.Theindexdivisorisadjustedintheeventof: Stocksplits Specialdividends Spinoffs Adjusted/weightedmarketcapofallS&P500stocks:Theadjustedmarketcapitalizationofeachindividualcompanyisarrivedatbyusingthefollowingformula: Weighting=MarketCapitalizationofIndividualComponent/SumoftheMarketCapitalizationofAllS&P500Stocks Advantagesofthemarket-weightedmethodology:Themarket-weightedmethodologyresultsinanindexwhichpresentsamorerepresentativepictureoftheoveralleconomythanindicesthatassignanequalsharetoallcompaniesorareprice-weighted. Drawbacksofthemarket-weightedmethodology:Themarket-weightedmethodologyresultsinthemega-capcompaniesimpactingtheindexinanoutsizedmanner.Furthermore,thismethodologyhidestheweaknessesand/orstrengthsofsmallercompaniesiftheirperformancedivergesfromtheperformanceofthelarge-capcompanies. HowtoInvestinStandardandPoor’sindex? ItisdifficultforinvestorstoreplicatetheS&P500becauseaportfoliobasedonthatindexrequiresspecificquantitiesofstockfrom500companies.Itiseasiertobuyanindexfundifaninvestorwishestoreplicatetheindex.Popularindexfundsinclude: VanguardS&P500ETF iSharesS&P500IndexETF SPDRS&P500ETF Tolearnmore,launchourfreefinancecourses! OtherS&Pindices OtherpopularStandard&Poor’sindicesinclude: SmallCap600:Anindexrepresentingsmall-capcompanies MidCap400:Anindexrepresentingmid-capcompanies 900:Combines500andMidCap400 Composite1500:SmallCap600,MidCap400,and500arecombined.TheyarethencollectivelycalculatedtoarriveattheComposite1500. 3.S&PGlobalMarketIntelligence S&PGlobalMarketIntelligenceprovideshigh-qualityindustrydata,financialdata,news,analysis,andresearchtoitsclientinvestorsbasedontheclient’sportfolio.Itsclientsincludeuniversities,corporations,governmentagencies,andinvestmentprofessionals.Thetoolstheyprovidehelptheirclients: Tracktheperformanceoftheirportfolios Tracktheperformanceofcertainsectorsoftheeconomy Generatealpha Understandindustrydynamics Findinvestmentopportunities Assesscreditrisk Tolearnmore,launchourfreefinancecourses! 4.S&PGlobalPlatts S&PGlobalPlattswasfoundedin1909andprovidesbenchmarkpricesfor,andinformationabout,theenergyandcommoditiesmarkets.Thesegmentscoveredbythemincludepower,oilandgas,petrochemicals,agriculture,shipping,andmetals.Theirclientsinclude: Traders Riskmanagers Analysts Purchasingagents Explorationcompanies Refiners Miners Utilities Steelcompanies Airlines Automanufacturers Governmentagencies Financialinstitutions Lawyers Engineers Consultants Assetmanagers   LearnMore ThankyouforreadingCFI’sguideonS&P–StandardandPoor’s.FindoutmoreaboutequityinvestingbyclickingonthefollowingCFIarticles: TradingFloor HowtoReadStockCharts GuidetoInvestingforDummies FinanceInvestingBooks Sharethisarticle GetCertifiedfor
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