From continuing operations plus depreciation

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from continuing operations plus depreciation, amortization, deferred income taxes, and other noncash items - e analyst team completes its analysis and then presents its findings and recommenda- - a rating committee that reviews the team's work. In the end, it is these rating commit- t decide the final rating (or rating outcome) for debt issues and issuers. The next step the rating agency to inform the issuer of the rating committee's decision. In some cases, disagree with the rating and agencies have procedures for handling appeals. The agency ratings via press release and on their Web pages. The analyst team monitors ongoing ments and provides periodic updates about issues and issuers. :3USINESS INSIGHT Moody's Approach to Credit Ratings dy's applies a holistic approach to credit ratings, which is described from excerpts on its ite as follows [ . Emphasis on the Qualitative: Moody's ratings are not based on a defined set of financial ratios or rigid computer models. Rather, they are the product of a comprehensive analysis of each individual issue and issuer by experienced, well-informed, impartial credit analysts. Focus on the Long-Term: Since Moody's ratings are intended to measure long-term risk, our analytical focus is on fundamental factors that will drive each issuer's long-term ability to meet debt payments, such as a change in management strategy or regulatory trends. As a rule of thumb, we are looking through the next economic cycle or longer. Global Consistency: Our analytical team approach also supports consistency by including Moody's directors, along with global industry specialists and analysts with regional and other perspectives, in every rating decision. Level and Predictability of Cash Flow: Our main emphasis throughout the rating analysis is on understanding strategic factors likely to support future cash flow, while identifying critical factors that will inhibit future cash flow. The issuer's capacity to respond favorably to uncer- tainty is also key. Generally, the greater the predictability of an issuer's cash flow and the larger the cushion supporting anticipated debt payments, the higher the rating will be.
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4-27 Module 4 I Credit Risk Analysis and Interpretation Headquarters Common across all rating agencies, is that the rated organizations (corporations, municipalities, sovereign nations) pay the credit rating agencies for a rating. Conceivably this could create a lack of independence or other conflicts of interest. Indeed, credit rating agencies came under attack in the wake of the accounting scandals during the dot com crisis. Critics claimed that the major rating agencies failed investors by not providing reliable ratings on Enron, WorldCom, and other companies that eventually went bankrupt. Agencies were also cited for abuses including failing to provide timely ratings downgrades, billing companies for unsolicited ratings, and bundling ratings with additional (potentially more lucrative) services. The agencies defended themselves
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