Standard & Poor's Corporation

Definition

Standard & Poor’s Corporation (S&P) is a financial services company and a subsidiary of McGraw-Hill, Inc. It is renowned for providing a variety of investment services, which include:

Rating Securities: S&P rates the creditworthiness of corporations, sovereign nations, and other entities. These ratings range from AAA (highest quality) to D (default).
S&P Composite Indexes: The company compiles several stock market indexes, most notably the S&P 500 Index, which tracks the performance of 500 large-cap companies listed on the U.S. stock exchanges.
Financial Publications: S&P publishes a wide array of financial and statistical materials, investment advisory reports, credit ratings, and analyses that aid investors in making informed decisions.

Examples

S&P 500 Index: One of the most followed equity indices, which includes 500 of the largest companies listed on the U.S. stock exchanges, offering a broad view of the market’s health.
Credit Rating: A company seeking to issue bonds might receive a credit rating from S&P, such as AA, which informs investors about the obligation’s risk level.
Investment Advisory Reports: Reports like “The Outlook” provide investors with insights and analyses on various market sectors, investment strategies, and economic trends.

Frequently Asked Questions (FAQs)

What is Standard & Poor’s best known for?

Standard & Poor’s is best known for providing credit ratings for various entities and compiling stock market indices, particularly the S&P 500 Index.

How does an S&P credit rating impact a company?

An S&P credit rating affects a company’s ability to borrow money and the interest rates it will pay. A higher rating typically indicates lower risk to investors and can result in lower borrowing costs.

What kind of entities does S&P rate?

S&P rates a wide range of entities, including corporations, governments, municipalities, and financial instruments.

How is the S&P 500 Index constructed?

The S&P 500 Index comprises 500 large publicly traded companies that are chosen based on sector representation, market capitalization, and liquidity.

Where can I find S&P’s investment reports and ratings?

S&P’s investment reports and ratings can be accessed through their official website and various financial media and research platforms.

Credit Rating: An assessment provided by a credit rating agency on the creditworthiness of a borrower regarding a financial obligation.
S&P 500 Index: A stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.
McGraw-Hill, Inc.: A corporation that owns S&P and provides educational materials, financial information, and media services.

Online References

Suggested Books for Further Studies

“The Standard & Poor’s Guide to Understanding Stocks” by Standard & Poor’s
“The Little Book That Still Beats the Market” by Joel Greenblatt
“Investing For Dummies” by Eric Tyson
“Security Analysis” by Benjamin Graham and David L. Dodd
“The Intelligent Investor” by Benjamin Graham

Fundamentals of Standard & Poor’s Corporation: Financial Services Basics Quiz

### What is the primary function of Standard & Poor's Corporation? - [x] Rating securities and compiling stock indexes. - [ ] Providing direct investment services. - [ ] Offering insurance policies. - [ ] Executing stock trades on behalf of clients. > **Explanation:** Standard & Poor's Corporation primarily focuses on rating securities, which helps determine creditworthiness, and compiling stock indexes like the S&P 500. ### Which stock market index is Standard & Poor's best known for? - [x] S&P 500 Index - [ ] Nasdaq Composite - [ ] Dow Jones Industrial Average - [ ] Russell 2000 > **Explanation:** The S&P 500 Index is Standard & Poor's most recognized index, tracking the performance of 500 large-cap U.S. companies. ### What is the highest credit rating Standard & Poor's can assign? - [ ] BBB+ - [ ] AA+ - [x] AAA - [ ] CCC > **Explanation:** The highest credit rating assigned by Standard & Poor's is AAA, indicating the highest level of creditworthiness. ### How does S&P's credit rating affect a company's borrowing cost? - [x] A higher credit rating usually results in lower borrowing costs. - [ ] A lower credit rating results in lower borrowing costs. - [ ] A higher credit rating has no effect on borrowing costs. - [ ] Credit ratings do not affect borrowing costs. > **Explanation:** A higher credit rating from S&P typically means lower perceived risk for lenders, resulting in lower borrowing costs for the rated entity. ### What type of entities can be rated by S&P? - [ ] Only corporations - [x] Corporations, governments, municipalities, and financial instruments - [ ] Only governments - [ ] Only financial instruments > **Explanation:** S&P rates a wide range of entities including corporations, governments, municipalities, and financial instruments. ### Where can investors find S&P’s published financial information? - [ ] Only in printed books - [ ] Primarily through news channels - [x] On the official S&P Global Ratings website and other financial media platforms - [ ] Exclusively through paid subscriptions > **Explanation:** Investors can find S&P's financial reports and ratings on their official website and through other financial media and research platforms. ### What publication often provides investment insights from S&P? - [ ] Business Weekly - [ ] Economical Times - [ ] S&P Trends - [x] The Outlook > **Explanation:** "The Outlook" is known for providing various investment insights and financial analyses from Standard & Poor's. ### Who owns Standard & Poor's Corporation? - [ ] Morgan Stanley - [ ] Financial Times Group - [x] McGraw-Hill, Inc. - [ ] Thomson Reuters > **Explanation:** Standard & Poor's Corporation is a subsidiary of McGraw-Hill, Inc. ### What is included in the S&P 500 Index? - [ ] 500 largest private companies in the US - [x] 500 large publicly traded companies in the US - [ ] 500 highest growth startups globally - [ ] 500 multinational corporations > **Explanation:** The S&P 500 Index includes 500 large publicly traded companies in the United States, offering a snapshot of the overall U.S. stock market performance. ### Why are S&P credit ratings important for investors? - [ ] They determine a company's stock price. - [ ] They disclose a company's net income. - [x] They provide insight into the creditworthiness of a company. - [ ] They direct company policy decisions. > **Explanation:** S&P credit ratings give investors a clear understanding of a company's creditworthiness, helping in assessing the risk associated with investing in that company.

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