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How Dun & Bradstreet Collects and Analyzes Data for Equity Research and Valuation



Equity Research and Valuation: A Guide to Dun & Bradstreet's Rating System




Equity research and valuation are essential skills for investors and businesses who want to make informed decisions about their investments, acquisitions, partnerships, or competitors. Equity research involves analyzing the financial performance, growth potential, competitive advantage, and risk profile of a business or a sector. Valuation involves estimating the fair value or worth of a business or a security based on various methods and models.




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There are many methods and models of valuation, such as discounted cash flow (DCF), dividend discount model (DDM), residual income model (RIM), relative valuation (RV), market multiples (MM), asset-based valuation (ABV), etc. Each method has its own assumptions, advantages, disadvantages, and applications. However, no matter which method or model is used, one of the most important inputs for valuation is reliable and high-quality data.


That's where Dun & Bradstreet comes in. Dun & Bradstreet is a global leader in business data and analytics that provides comprehensive and accurate information on millions of businesses worldwide. One of its flagship products is the D&B Rating, which is a comprehensive and reliable indicator of business risk. The D&B Rating can help investors and businesses evaluate the financial strength and risk of a business using a simple yet powerful system.


In this article, we will explain what Dun & Bradstreet is, how it collects and processes data, what the D&B Rating is, how it measures financial strength and risk, how it compares with other rating systems and predictive indicators, and how it can be used for equity research and valuation. By the end of this article, you will have a better understanding of how to use Dun & Bradstreet's rating system for your investment or business decisions.


Dun & Bradstreet: A Global Leader in Business Data and Analytics




Dun & Bradstreet is a company that has been providing business data and analytics for over 180 years. It has a database of more than 420 million businesses across 200 countries, covering various industries, sectors, sizes, ownership types, etc. It offers a range of products and services that help customers gain insights into their markets, customers, suppliers, competitors, partners, prospects, etc.


Dun & Bradstreet collects data from thousands of sources daily, such as public records, government agencies, trade associations, financial institutions, media outlets, web sources, etc. It also receives data directly from businesses through voluntary submissions, surveys, interviews, etc. It then aggregates, edits, and verifies the data using its proprietary and patented processes and technologies.


One of the key processes that Dun & Bradstreet uses to ensure data quality is the DUNSRight quality process. The DUNSRight quality process consists of five quality drivers that work sequentially to collect and enhance the data. The five quality drivers are:


  • Global Data Collection, which brings together data from a variety of sources worldwide.



  • Entity Matching, which uses a patented algorithm to match and merge data from different sources and produce a single, more accurate picture of each business.



  • D-U-N-S Number, which is a unique nine-digit identifier that is assigned to each business and used to track and link the business across the Dun & Bradstreet database and other sources.



  • Corporate Linkage, which connects related businesses based on ownership, control, or influence and enables customers to view their total risk or opportunity across a corporate family.



  • Predictive Indicators, which use statistical analysis to rate a business's past performance and indicate how likely the business is to perform that same way in the future.



The output of this extensive process is high-quality business information that is embedded in Dun & Bradstreet's solutions and reports. Customers can rely on this information to make profitable decisions for their businesses.


The D&B Rating: A Comprehensive and Reliable Indicator of Business Risk




One of the most popular and widely used products that Dun & Bradstreet offers is the D&B Rating. The D&B Rating is a comprehensive and reliable indicator of business risk that has been used by millions of customers for over 100 years. The D&B Rating helps customers assess the financial strength and risk of a business using a simple yet powerful system.


The D&B Rating consists of two parts: the Financial Strength Indicator and the Risk Indicator. The Financial Strength Indicator is based on the net worth or equity of a business, which is derived from its balance sheet or other sources. The Risk Indicator is based on the overall creditworthiness of a business, which is derived from its payment history, financial performance, industry trends, economic conditions, etc.


The Financial Strength Indicator is represented by a letter code that ranges from 5A to HH, where 5A indicates the highest level of financial strength and HH indicates the lowest level of financial strength. The Risk Indicator is represented by a number code that ranges from 1 to 4, where 1 indicates the lowest level of risk and 4 indicates the highest level of risk. The combination of these two codes forms the D&B Rating, which provides a quick and easy way to evaluate the financial strength and risk of a business.


For example, a D&B Rating of 5A1 means that the business has a net worth of over $50 million and a minimal risk of failure or delinquency. A D&B Rating of HH4 means that the business has a net worth of less than $5,000 and a high risk of failure or delinquency. A D&B Rating of NR means that no rating has been assigned due to insufficient or conflicting information.


The D&B Rating is not a static or fixed rating. It is updated regularly based on the latest available information on a business. It also reflects the changes in the economic environment and industry conditions that may affect a business's financial strength and risk. Therefore, customers should always check the date of the rating and review any changes or trends over time.


How to Use the D&B Rating for Equity Research and Valuation




The D&B Rating can be used for various purposes related to equity research and valuation. It can help customers:


  • Screen and select potential investments, acquisitions, partnerships, or competitors based on their financial strength and risk profile.



  • Benchmark and compare businesses within an industry or across industries based on their financial strength and risk profile.



  • Estimate the fair value or worth of a business or a security based on its financial strength and risk profile.



  • Adjust the discount rate or required rate of return for a business or a security based on its financial strength and risk profile.



  • Forecast the future cash flows or earnings of a business or a security based on its financial strength and risk profile.



  • Identify and mitigate the risks associated with investing in or doing business with a particular business or sector.



Benefits and Limitations of Using the D&B Rating for Equity Research and Valuation




The D&B Rating has many benefits for customers who want to use it for equity research and valuation. Some of the benefits are:


  • It is based on a large and comprehensive database of business information that covers millions of businesses worldwide.



  • It is updated regularly based on the latest available information and reflects the changes in the economic environment and industry conditions.



  • It is simple and easy to understand and use, as it provides a clear and concise indication of the financial strength and risk of a business.



  • It is consistent and comparable across borders, as it uses a standardized and uniform system of rating businesses.



  • It is widely recognized and trusted by customers, suppliers, lenders, investors, regulators, etc., as it has been used for over 100 years.



However, the D&B Rating also has some limitations that customers should be aware of. Some of the limitations are:


  • It is not a guarantee or a recommendation, as it does not take into account the specific objectives, needs, or preferences of each customer.



  • It is not a substitute for independent judgment or due diligence, as it does not provide all the information or analysis that may be relevant or necessary for each customer.



  • It is not a definitive or absolute measure, as it may be affected by errors, omissions, inaccuracies, or biases in the data or the rating process.



  • It is not a static or fixed rating, as it may change over time based on new information or circumstances that may affect a business's financial strength or risk.



  • It is not a comprehensive or holistic rating, as it does not cover all the aspects or dimensions that may affect a business's performance, potential, or risk.



Therefore, customers should always use the D&B Rating with caution and discretion. They should also supplement the D&B Rating with other sources of information and analysis that may be relevant or necessary for their equity research and valuation purposes.


Conclusion




In conclusion, equity research and valuation are essential skills for investors and businesses who want to make informed decisions about their investments, acquisitions, partnerships, or competitors. However, equity research and valuation require reliable and high-quality data. That's where Dun & Bradstreet comes in. Dun & Bradstreet is a global leader in business data and analytics that provides comprehensive and accurate information on millions of businesses worldwide. One of its flagship products is the D&B Rating, which is a comprehensive and reliable indicator of business risk. The D&B Rating can help customers evaluate the financial strength and risk of a business using a simple yet powerful system.


The D&B Rating consists of two parts: the Financial Strength Indicator and the Risk Indicator. The Financial Strength Indicator is based on the net worth or equity of a business. The Risk Indicator is based on the overall creditworthiness of a business. The combination of these two codes forms the D&B Rating, which provides a quick and easy way to evaluate the financial strength and risk of a business. The D&B Rating is updated regularly based on the latest available information on a business. It also reflects the changes in the economic environment and industry conditions that may affect a business's financial strength and risk.


The D&B Rating can be used for various purposes related to equity research and valuation. It can help customers screen and select potential investments, acquisitions, partnerships, or competitors; benchmark and compare businesses within an industry or across industries; estimate the fair value or worth of a business or a security; adjust the discount rate or required rate of return for a business or a security; forecast the future cash flows or earnings of a business or a security; identify and mitigate the risks associated with investing in or doing business with a particular business or sector.


However, the D&B Rating also has some limitations that customers should be aware of. It is not a guarantee or a recommendation; it is not a substitute for independent judgment or due diligence; it is not a definitive or absolute measure; it is not a static or fixed rating; it is not a comprehensive or holistic rating. Therefore, customers should always use the D&B Rating with caution and discretion. They should also supplement the D&B Rating with other sources of information and analysis that may be relevant or necessary for their equity research and valuation purposes.


We hope that this article has given you a better understanding of how to use Dun & Bradstreet's rating system for your investment or business decisions. If you want to learn more about Dun & Bradstreet's products and services, you can visit their website at https://www.dnb.com/ or contact their customer service at 1-800-234-3867.


FAQs




Here are some frequently asked questions and answers related to the topic of the article:


What is the difference between the D&B Rating and the D&B PAYDEX Score?


  • The D&B Rating is a comprehensive and reliable indicator of business risk that measures the financial strength and risk of a business. The D&B PAYDEX Score is a unique dollar-weighted indicator of payment performance that measures how a business pays its bills. The D&B PAYDEX Score is one of the factors that influences the Risk Indicator of the D&B Rating.



How can I get a D&B Rating or a D&B PAYDEX Score for my business?


  • To get a D&B Rating or a D&B PAYDEX Score for your business, you need to have a D-U-N-S Number, which is a unique identifier that is assigned to each business by Dun & Bradstreet. You can request a free D-U-N-S Number from Dun & Bradstreet's website at https://www.dnb.com/duns-number/get-a-duns.html. Once you have a D-U-N-S Number, you can update your business information and submit your payment history to Dun & Bradstreet through their online platforms, such as CreditBuilder, CreditAdvisor, etc.



How can I improve my D&B Rating or my D&B PAYDEX Score?


  • To improve your D&B Rating or your D&B PAYDEX Score, you need to improve your financial strength and risk profile or your payment performance. Some of the ways to do that are: maintain a positive net worth or equity; increase your sales and profits; reduce your debt and liabilities; diversify your revenue sources and customer base; manage your cash flow and working capital; pay your bills on time or ahead of schedule; avoid late payments, defaults, delinquencies, collections, liens, judgments, bankruptcies, etc.



How can I access other businesses' D&B Ratings or D&B PAYDEX Scores?


  • To access other businesses' D&B Ratings or D&B PAYDEX Scores, you need to have a subscription or a license to one of Dun & Bradstreet's online platforms, such as DNBi, D&B Credit, D&B Hoovers, etc. You can also request customized reports or solutions from Dun & Bradstreet's experts. You can find more information about Dun & Bradstreet's products and services on their website at https://www.dnb.com/ or contact their customer service at 1-800-234-3867.



Where can I find more resources or examples on how to use the D&B Rating for equity research and valuation?


  • You can find more resources or examples on how to use the D&B Rating for equity research and valuation on Dun & Bradstreet's website at https://www.dnb.com/resources.html. You can also download a free PDF guide on how to use the D&B Rating at https://www.dnb.com/content/dam/english/dnb-data-insight/predictive-indicators/dnb_rating_guide.pdf.



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