S&P Research Methodology

Standard & Poor’s Equity Research Methodology

BOTTOM-UP COMPANY ANALYSIS

Company Fundamental Analysis1 MACRO AND ECONOMIC ANALYSIS

When conducting bottom-up company analysis, analysts are expected to incorporate Macro and Economic Analysis.

Company Valuation Analysis

Step 5

Assess:

■ Management team ■ Competitive environment ■ Suppliers ■ Buyers ■ Substitutes ■ Barriers to entry ■ Regulatory environment

Review

Step 9

Decide STARS recommendation

(refer to inside panel for details on S&P’s 5 STARS Ranking System) ■ Incorporate risk assessment rating into overall STARS ranking (For more details on Standard & Poor’s Risk Ranking Assessment, call 1-800-523-4534.)

Products and Services

Retail

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Step 1

Review public information

■ 10K’s ■ 10Q’s ■ Annual Reports ■ Conference Calls

Step 2

Conversations with company management for detailed information

■ Establish relationships with new companies ■ Most meetings with companies done via phone; some in-person meetings ■ Obtain a better understanding of: ● Trends ● Leverage/margins ● Efficiency programs ● Costs - current, changes

Step 3

Prepare 3-Year Preliminary Earnings Model

■ EPS Growth Rate ■ Earnings Prospects ■ Balance sheet and cash flows

Step 4

Review financial assumptions

with company as appropriate for company guidance (e.g. earnings comparisons)

Step 6

Finalize Earnings Model

■ Determine earnings quality ■ Evaluate corporate governance ■ Project Standard & Poor’s Core Earnings, S&P’s more accurate, proprietary representation of the true performance of a firm’s ongoing operations

Step 7

Analyst uses multiple criteria for valuing

a company, including: ■ Intrinsic Value Analysis ■ Relative Valuation ■ Sum of the Parts ■ Risk Assessment – Analyst incorporates a...