Credit rating analysis of Oracle corporation

Arif Harbott
Arif Harbott

I have just finished my finance 1 coursework which was quite open ended but very interesting. In 1,200 words or less we had to conduct a credit rating of a company of our choice.

I picked Oracle as it is a company I am familiar with and has a very interesting position in the market. I mainly followed Moody’s credit methodology for global software industry and included some aspects from the S&P credit methodology.

You can download my whole report here.

Oracle overview

Oracle sell a wide range of enterprise IT solutions, including databases, middleware, applications, and hardware. Software license updates and support, (its most profitable segments), account for about 50% of revenues. An active acquisition program is a fundamental component of the company’s strategy. Oracle has issued $27.8bn of debt, which accounts for almost 50% of the total rated debt in the sector.

Business risk

 BandMy Rating
MarketCompetitive young market with high margins and strong growthAA
CompetitionVery strong competition but Oracle is ranked number 1 or 2 in its key marketsA
ManagementStable, experienced managementAA
Other risksMinorAA

Business profile

DiversificationBandMy Rating
Product Line DiversityOperates a broad portfolio with limited products in only one segmentAA
Geographic DiversityGlobally diversified; no single region has more than 45% of revenueA
End-Market DiversityLargest market up to 20% of salesA
Market position  
Market Share#1 or #2 market share in all key marketsAA

Financial risk

Scale and flexibilityValueMy Rating
Free Cash flow$7,447mA
Profitability and coverage  
Operating profit33.79%AAA
Operating income ROA (net cash)20.12%A
Debt coverage and liquidity  
Debt / EBITDA0.88A
EBITDA – CAPEX / Interest16.83xAA
Free cash flow / Debt50.82%AA
Cash + Mkt Sec / Debt126.03%AA
Interest cover12.02xAA
Capital structure  
Long-term debt to equity36.89%BBB
Debt to equity46.97%BBB

Oracle credit rating assessment

I concluded that Oracle is a global leader with large with dependable cash flows and excellent growth prospects. It is easily the second largest company in the industry after Microsoft (AAA).

Oracle is rated A2 by Moody’s and A by S&P, the second highest rating in the industry after Microsoft . My analysis rates Oracle AA; so some reasons for the differences might be:

  • Ratings need to be forward looking whereas I have used historical data.
  • Moody state ratings might depend on confidential information they cannot publish.
  • Some hard-to-measure qualitative factors affect ratings.
  • Oracle’s high debt levels relative to the industry may bring the rating down.
  • I used a small sample of interviews to validate qualitative findings, which introduces subjectivity and bias.

You can download my whole report here.

Credit rating analysis of Oracle corporation

3 thoughts on “Credit rating analysis of Oracle corporation

  1. Originally I was looking at to do Mangroup, but then i found it is too complex regarding its capital structure. I then picked up vodafone as it has issued a number of bonds…

    BTW, I did very, very bad in the two exams last night….

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