Intro
This post is based on the company’s official 10-K filing and investor relations (IR) materials. It summarizes only objective facts and the logical implications that directly follow from them. Personal opinions and forecasts have been minimized. The goal is to help readers understand and interpret the materials more easily.
Table of Contents
👉 1. Business Overview
👉 2. Financial Highlights
👉 3. Valuation
👉 4. Risk
👉 5. MD&A (Management’s Discussion and Analysis)
👉 6. Summary
1. Business Overview 💼
Who Is Moody’s? 🏛️
Moody’s Corporation (MCO) is one of the world’s leading credit rating agencies. A credit rating agency evaluates the financial strength of companies, governments, and financial products, and assigns a rating that signals how likely they are to repay their debt.
In simple terms, Moody’s answers one key question for investors:
“If I lend money to this company or government, how risky is it?”
Moody’s plays a central role in global financial markets because investors rely on its ratings when buying bonds and other fixed-income securities.
Two Core Business Segments 🔍
Moody’s operates through two main divisions:
- Moody’s Investors Service (MIS) – The credit rating business
- Moody’s Analytics (MA) – Data, software, and risk analytics solutions
1️⃣ Moody’s Investors Service (MIS) – The Ratings Engine
MIS provides credit ratings on:
- Corporate bonds
- Government and municipal debt
- Structured finance products (such as asset-backed securities)
- Financial institutions
A credit rating is a letter-based score (such as Aaa, Aa, Baa) that indicates the creditworthiness of a borrower. Creditworthiness means the ability and willingness to repay debt.
Companies and governments pay Moody’s to rate their debt when they want to raise money in capital markets. Investors then use those ratings to assess risk before investing.
This segment is closely tied to:
- Bond issuance volumes
- Interest rate cycles
- Overall capital market activity
When more companies issue bonds, Moody’s typically generates more revenue.
2️⃣ Moody’s Analytics (MA) – Recurring Data & Software Growth
Moody’s Analytics provides:
- Risk management software
- Financial data and research tools
- Economic forecasting
- Compliance and regulatory solutions
Unlike the ratings business, this segment generates more recurring revenue. Recurring revenue means predictable income from subscriptions or long-term contracts rather than one-time transactions.
This business benefits from:
- Financial institutions needing risk management tools
- Increasing regulatory requirements
- Growing demand for data-driven decision making
Why Moody’s Has a Competitive Advantage 🛡️
Moody’s operates in an industry with high barriers to entry. A barrier to entry is something that makes it difficult for new competitors to enter a market.
- Strong brand credibility built over decades
- Regulatory recognition in many jurisdictions
- Network effects (investors globally rely on established ratings)
- Limited major competitors
In practice, only a few global agencies dominate the credit rating market. This concentrated structure supports pricing power and high operating margins.
How Moody’s Makes Money 💰
Moody’s revenue model combines:
- Transaction-based revenue from bond issuance (more cyclical)
- Subscription-based revenue from analytics products (more stable)
This mix provides exposure to economic cycles while also maintaining a base of recurring income.
Plain English Summary 📘
Moody’s helps investors understand risk. When companies or governments want to borrow money, Moody’s evaluates how safe that loan is and gives it a rating. Investors use those ratings before buying bonds.
At the same time, Moody’s sells financial data and software tools to banks and institutions. This second business creates steady, subscription-based revenue.
In short:
- When bond markets are active, Moody’s benefits.
- When financial institutions need better risk tools, Moody’s benefits.
- Because few competitors exist, Moody’s maintains strong profitability.
Understanding this business model is essential before analyzing its financial performance in the next section.
2. Financial Highlights
Income Statement Summary
| (Unit: $m, EPS in $) | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | 5,916 | 7,088 | 7,718 |
| Operating Expenses | 3,779 | 4,213 | 4,367 |
| Operating Income | 2,137 | 2,875 | 3,351 |
| Income Before Tax | 1,935 | 2,699 | 3,130 |
| Net Income | 1,608 | 2,059 | 2,462 |
| EPS (Diluted) | 8.7 | 11.3 | 13.7 |
Plain English: Revenue increased steadily from FY2023 to FY2025, and operating income grew at a faster pace than revenue. This indicates improving operating efficiency over time. Net income also expanded meaningfully, showing that the company converted a larger share of its revenue into profit. Diluted EPS rose consistently across the three years, reflecting both earnings growth and disciplined capital management.
Key Financial Ratios
| (Unit: %) | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| ROE (%) | 46.3% | 57.2% | 62.1% |
| ROA (%) | 11.0% | 13.7% | 15.7% |
| ROIC (%) | 21.3% | 25.1% | 29.9% |
| ROTC (%) | 20.4% | 25.8% | 29.9% |
| Debt-to-Equity Ratio (%) | 201.4% | 199.3% | 166.3% |
| Net Debt / EBITDA (x) | 1.9 | 1.5 | 1.2 |
| Interest Coverage (x) | 8.5 | 12.1 | 15.7 |
| Current Ratio (%) | 173.6% | 147.4% | 174.0% |
| Quick Ratio (%) | 154.1% | 132.8% | 150.0% |
| Fixed Assets to Long-term Capital Ratio (%) | 5.8% | 6.3% | 6.5% |
Plain English: Profitability and capital efficiency strengthened over time: ROIC and ROTC increased, indicating the business generated more operating profit for each dollar of capital it used (with ROIC excluding cash from invested capital, per the required definition). Leverage improved as well: Debt-to-Equity fell and Net Debt / EBITDA declined from 1.9x to 1.2x, while interest coverage rose sharply, meaning operating income covered interest expense more comfortably. Liquidity remained solid, with current and quick ratios staying above 1.0x equivalents (shown here as percentages).
Balance Sheet Summary
| (Unit: $m) | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Assets | |||
| Cash & Equivalents | 2,130.0 | 2,408.0 | 2,384.0 |
| Accounts Receivable | 1,659.0 | 1,801.0 | 2,024.0 |
| Inventory | — | — | — |
| Total Current Assets | 4,341.0 | 5,290.0 | 5,186.0 |
| Property, Plant & Equipment | 603.0 | 656.0 | 722.0 |
| Intangibles & Goodwill | 8,005.0 | 7,884.0 | 8,234.0 |
| Total Non-current Assets | 10,281.0 | 10,215.0 | 10,644.0 |
| Total Assets | 14,622.0 | 15,505.0 | 15,830.0 |
| Liabilities | |||
| Accounts Payable | 1,076.0 | 1,344.0 | 1,304.0 |
| Short-term Debt | 0.0 | 697.0 | 0.0 |
| Total Current Liabilities | 2,500.0 | 3,597.0 | 2,981.0 |
| Long-term Debt | 7,001.0 | 6,731.0 | 6,994.0 |
| Total Non-current Liabilities | 8,646.0 | 8,181.0 | 8,644.0 |
| Total Liabilities | 11,146.0 | 11,778.0 | 11,625.0 |
| Equity | |||
| Common Equity | 3,476.0 | 3,727.0 | 4,205.0 |
| Total Liabilities & Equity | 14,622.0 | 15,505.0 | 15,830.0 |
Plain English: The balance sheet expanded modestly, and the business remained asset-light in physical terms (PP&E is small relative to total assets). A large portion of assets sits in intangibles and goodwill, which is common for data, analytics, and acquired-information businesses. On the funding side, total debt stayed elevated but improved relative to equity by FY2025, while common equity increased, reflecting accumulated earnings net of capital returns.
Cash Flow Summary
| (Unit: $m) | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Cash Flow from Operating Activities | 2,151.0 | 2,838.0 | 2,901.0 |
| Cash Flow from Investing Activities | (247.0) | (1,056.0) | 2.0 |
| Cash Flow from Financing Activities | (1,584.0) | (1,446.0) | (3,063.0) |
| Net Change in Cash | 361.0 | 278.0 | (24.0) |
| Beginning Cash Balance | 1,769.0 | 2,130.0 | 2,408.0 |
| Ending Cash Balance | 2,130.0 | 2,408.0 | 2,384.0 |
Plain English: The company generated strong and rising operating cash flow, which is the most important “quality check” for earnings. Investing cash flow was meaningfully negative in FY2024 (net investment outflows), then near neutral in FY2025. Financing cash flow remained negative across all years, consistent with ongoing shareholder returns (such as buybacks and dividends) and debt activity. Overall cash ended FY2025 roughly flat versus FY2024, despite larger financing outflows, supported by robust operating cash generation.
Beginner Takeaways
- Profit engine strengthened: Revenue grew and operating margin expanded each year, which is typically a sign of pricing power and scale benefits in a subscription/analytics-style business.
- Capital efficiency improved: ROIC and ROTC rose, meaning the company generated more operating profit per dollar of capital employed (using the exact required formulas, including the cash adjustment for ROIC).
- Leverage risk moved in the right direction: Net Debt / EBITDA declined and interest coverage increased, suggesting the debt load became easier to service as earnings grew.
- Cash flow supports the story: Operating cash flow stayed strong, helping fund dividends and buybacks without meaningfully draining the cash balance.
- Balance sheet composition matters: A large share of assets is intangibles and goodwill, which is normal for this type of business, but it means investors should focus heavily on sustained cash generation and margins.
3. Valuation
Here are the valuation ratios. These numbers don’t tell you by themselves if the stock is cheap or expensive. Investors typically compare them with peers, the broader market, or with their own view of intrinsic value (DCF). It’s up to each investor to judge whether these multiples signal undervaluation or overvaluation.
| Metric | Company |
|---|---|
| P/E | 30.9 |
| Forward P/E | 26.2 |
| P/B | 18.1 |
| EV/EBITDA | 21.1 |
| P/S | 9.9 |
| Dividend Yield (%) | 0.9 |
| Free Cash Flow Yield (%) | 3.4 |
💡 Plain English Recap
P/E and Forward P/E suggest the market is pricing the business for continued earnings strength. If Forward P/E is lower than P/E, it typically implies expected earnings growth or margin support ahead (even if the stock price stays the same).
P/S is relatively high, which can happen when a company has strong margins and a repeatable, subscription-like revenue base. In plain terms: investors are willing to pay more per dollar of revenue when that revenue converts efficiently into profit and cash.
P/B can look very elevated for asset-light, intangible-heavy businesses and for companies that have reduced equity through years of share repurchases. This metric is often less informative here than cash-flow and earnings-based multiples.
EV/EBITDA is useful for comparing operating performance across companies with different debt levels. A higher number generally means the market is assigning a premium to operating cash earnings (or expecting growth and durability).
Free Cash Flow Yield translates the business into a simple question: “How much free cash is this company generating versus what the whole company is worth in the market?” A higher yield usually means more cash generation per dollar invested at today’s price, but context (growth, risk, and cyclicality) matters.
1) Forward P/E is shown as a consensus estimate (average from major financial data providers) for reference.
2) 2026-02-19
4. Risks
Editorial Note:
In order to enhance readability, we have omitted broad, market-wide risks that generally affect all companies. The following discussion is focused solely on the risks that are specific to this company and the industry in which it operates.
⚖️ Regulatory and Legal Risk
Moody’s operates in a highly regulated environment, particularly in the credit rating business. Credit ratings are subject to oversight by regulators such as the U.S. Securities and Exchange Commission (SEC) and other global authorities.
- Regulatory scrutiny may increase compliance costs.
- Changes in laws or regulations could alter how ratings are produced, distributed, or monetized.
- Litigation risk exists if investors claim they relied on ratings that later proved inaccurate.
Because credit ratings influence capital markets decisions, regulatory pressure is an inherent structural risk in this industry.
🏦 Cyclicality of Debt Markets
A significant portion of Moody’s revenue depends on global debt issuance activity (corporate bonds, structured finance, and government debt).
- If bond issuance declines, ratings revenue may decrease.
- Periods of financial stress can reduce structured finance transactions.
This means revenue can fluctuate depending on the health of capital markets.
🏢 Issuer-Pay Business Model Risk
Moody’s primarily follows an issuer-pay model, meaning companies issuing debt pay Moody’s to rate their securities.
- This structure may create perceived or actual conflicts of interest.
- Reputation risk increases if stakeholders question rating independence.
Maintaining credibility and independence is critical to sustaining the business model.
🌍 Reputation and Brand Risk
Moody’s brand is built on perceived objectivity, analytical integrity, and reliability.
- Errors in ratings or methodologies could damage credibility.
- Reputational harm may reduce demand for services or attract regulatory action.
Because ratings influence trillions of dollars in capital allocation, trust is a core asset.
📊 Competition in Ratings and Analytics
Moody’s faces competition from other major credit rating agencies and data analytics firms.
- Competitive pressure may affect pricing power.
- Technological innovation by competitors could shift market share.
The analytics and data segment also competes in a fast-evolving financial technology environment.
💻 Cybersecurity and Data Risk
Moody’s relies heavily on proprietary data, analytical models, and digital infrastructure.
- Cyberattacks could disrupt operations.
- Unauthorized access to data may create legal and reputational exposure.
Given its role in global financial markets, operational resilience is critical.
🌐 Global Operations and Geopolitical Exposure
Moody’s operates in multiple jurisdictions worldwide.
- Local regulatory changes can affect operations.
- Sanctions or geopolitical restrictions may limit business in certain regions.
International diversification provides growth opportunities but adds compliance complexity.
👥 Dependence on Key Talent and Methodologies
The company depends on highly skilled analysts and proprietary methodologies.
- Loss of experienced personnel could affect analytical quality.
- Methodological changes must be carefully managed to maintain market confidence.
Human capital and analytical credibility are foundational to long-term performance.
💡 Plain English Summary
Moody’s core risks stem from its role as a global credit rating agency and financial data provider. The company depends on healthy debt markets, regulatory stability, strong reputation, and analytical credibility. If debt issuance slows, regulations tighten, reputational issues arise, or competitive pressures increase, financial performance could be affected. For beginners: the biggest risks are tied to market cycles, regulation, and maintaining trust in its ratings and analytics.
5. MD&A (Management’s Discussion and Analysis)
📈 Revenue Performance and Business Drivers
Management highlighted overall revenue performance across its two primary segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA).
- MIS (Credit Ratings Business): Revenue was primarily influenced by global debt issuance activity, including corporate bonds, structured finance, and government securities.
- MA (Analytics & Data Business): Revenue growth reflected continued demand for subscription-based research, risk management solutions, and data products.
Management emphasized that issuance volumes in global debt markets were a key determinant of ratings revenue, while recurring subscription revenue supported greater stability within the analytics segment.
💰 Profitability and Margin Trends
Management discussed operating margin performance, which reflects operating income divided by revenue and measures how efficiently the company converts revenue into profit before interest and taxes.
- Operating income changes were driven by revenue mix and cost discipline.
- Expenses included compensation, technology investment, and regulatory compliance costs.
Management noted that margin performance is influenced by the cyclical nature of the ratings business and the scalability of analytics subscriptions.
🔁 Capital Allocation and Shareholder Returns
Management outlined capital allocation priorities, including:
- Share repurchases (buying back company stock to reduce shares outstanding).
- Dividends (cash distributions to shareholders).
- Strategic investments in technology and product capabilities.
Share repurchases reduce the total number of shares, which can increase earnings per share (EPS) even if total net income remains stable.
🏦 Liquidity and Financial Position
Management discussed liquidity, which refers to the company’s ability to meet short-term financial obligations.
- Cash balances and operating cash flow were described as supporting ongoing operations and capital return programs.
- Debt levels were managed in alignment with long-term capital structure objectives.
Liquidity management was presented as sufficient to fund working capital needs, dividends, and share repurchases.
🌍 Market Environment and Outlook Commentary
Management acknowledged that performance remains influenced by:
- Global economic conditions.
- Interest rate environments affecting bond issuance.
- Regulatory developments impacting credit rating agencies.
While issuance activity can fluctuate, management emphasized the diversification of revenue streams between ratings and analytics.
💡 Plain English Summary
Management focused on three main themes: the health of global debt markets, the stability of subscription-based analytics revenue, and disciplined capital allocation. The ratings business depends heavily on how much new debt companies and governments issue, while the analytics business provides recurring revenue that adds stability. The company continues returning capital to shareholders through dividends and share repurchases, while maintaining liquidity to support operations.
6. Summary
Moody’s demonstrated consistent revenue growth and meaningful margin expansion over the period, reflecting stronger operating leverage in both its ratings and analytics businesses. Operating margin and net income increased steadily, supported by disciplined cost management and higher issuance activity.
Capital efficiency improved, as shown by rising ROIC and ROTC, indicating the company generated more operating profit per dollar of capital employed. Leverage metrics strengthened, with Net Debt / EBITDA declining and interest coverage increasing, suggesting improved debt service capacity.
Cash flow remained a core strength. Operating cash flow was robust and supported shareholder returns, including dividends and share repurchases, without materially weakening the balance sheet.
Valuation multiples indicate that the market assigns a premium to Moody’s earnings quality and recurring revenue profile. However, these multiples must be evaluated relative to peers, growth expectations, and individual return requirements.
Overall, the company’s financial structure reflects strong profitability, disciplined capital management, and business diversification between cyclical ratings revenue and recurring analytics revenue.
📝 Disclaimer
This article is intended for educational purposes only. It does not constitute financial, investment, or legal advice. All investment decisions involve risks, and readers should conduct their own research or consult with a licensed financial advisor.
👉 Moody’s (MCO) FY 2025 10-K Key Highlights (Filed 2026) | Explained for Beginners