The algorithm is based on technologies such as Artificial Intelligence (AI). Its functionality can be explained in 6 steps:
As a first step, the data is collected. The algorithm takes a multitude of different indicators from different sources into account, such as quantitative indicators, but also qualitative indicators.
The data quality is analyzed and evaluated. Problems with the quality of the existing data are identified.
The data is prepared to create a final data set that forms the basis for the next step - the calculation of the score. Therefore, problems identified in the previous step will be automatically resolved by the algorithm.
The final, high quality data set which contains the indicators is used to calculate a score. Since the algorithm calculates the score, this process cannot be manipulated for individual organizations.
Depending on the previously achieved score the rating* can be determined. If you don't know what individual ratings* stand for, you can check the rAAAtings matrix. Ratings* reach from rAAA - prime grade and lowest level of risk - to rD - worst-case scenario.
In a final step the rating* is saved to a database and provided to you via rAAAtings.com.
On the one hand, there are 5 different rating* categories:
Financial Performance Ratings are weighted ratings* and are based on several indicators, such as profitability, liquidity, market data, debt & equity, cash flow, etc.
Sustainability Ratings are weighted ratings* and are based on several indicators, such as environmental, social and governance (ESG) indicators, sustainable investments, etc.
Innovation Ratings are weighted ratings* and are based on several indicators, such as R&D, intellectual property, patents & trademarks, new revenue sources, etc.
Resiliency Ratings are weighted ratings* and are based on several indicators, such as financial and social indicators to overcome crises like the financial crisis or epidemics like COVID-19.
General Ratings are weighted ratings* and are based on Financial Performance, Sustainability, Innovation and Resiliency Ratings.
On the other hand, there are 26 rating* grades ranging from rAAA to rD:
| rAAAting | General, Financial Performance, Sustainability, Innovation or Resiliency |
|---|---|
| rAAA | Prime grade - highest General, Financial Performance, Sustainability, Innovation or Resiliency Rating, lowest level of risk. |
| rAA+ | High grade - very high General, Financial Performance, Sustainability, Innovation or Resiliency Rating, very low level of risk. |
| rAA | |
| rAA- | |
| rA+ | Upper medium grade - high General, Financial Performance, Sustainability, Innovation or Resiliency Rating, low level of risk. |
| rA | |
| rA- | |
| rBBB+ | Medium grade - good General, Financial Performance, Sustainability, Innovation or Resiliency Rating, moderate level of risk. |
| rBBB | |
| rBBB- | |
| rBB+ | Lower medium grade - adequate General, Financial Performance, Sustainability, Innovation or Resiliency Rating, slightly increased level of risk. |
| rBB | |
| rBB- | |
| rB+ | Low grade regarding General, Financial Performance, Sustainability, Innovation or Resiliency Rating, medium level of risk. |
| rB | |
| rB- | |
| rCCC+ | Very low grade regarding General, Financial Performance, Sustainability, Innovation or Resiliency Rating, high level of risk. |
| rCCC | |
| rCCC- | |
| rCC+ | Extremely low grade - poor General, Financial Performance, Sustainability, Innovation or Resiliency Rating, very high level of risk. |
| rCC | |
| rCC- | |
| rC+ | Substancial level of risk, very poor General, Financial Performance, Sustainability, Innovation or Resiliency Rating. |
| rC | |
| rC- | |
| rD | Worst-case scenario regarding General, Financial Performance, Sustainability, Innovation or Resiliency Rating. |
*rAAAtings.com is not a credit rating agency, is not subject to the REGULATION (EU) No 462/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 May 2013 amending Regulation (EC) No 1060/2009 on credit rating agencies and is therefore NOT LISTED as a rating acency according to that regulation at the European Securities and Markets Authority (ESMA). rAAAtings.com does not have conflicts such as conflicts of interest due to the issuer-pays model and disclosure for structured finance instruments, because rAAAtings.com does not conduct issuer-payed ratings nor does rAAAtings.com rate structured finance instruments. Therefore, it is not obliged to follow the legal requirements for credit rating agencies in order to create the ratings. The ratings you can find on rAAAtings.com are not credit ratings as they are provided by credit rating agencies, they are merely an impartial estimation of different company aspects based on the result of the rAAAtings algorithm.