Investability Quotient (IQ): Definition, How It Works, and Examples
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Summary:
The Investability Quotient (IQ), developed by Standard & Poor’s (S&P), was a proprietary tool used to assess a stock’s investment characteristics and risks within a universe of companies. It considered factors such as credit ratings, asset liquidity, company health, and industry volatility to assign a rating ranging from one to 100. While the IQ system is now integrated into S&P Capital IQ for comprehensive analysis, investors should use it as part of broader investment research and monitoring efforts.
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What is the investability quotient (IQ)?
The Investability Quotient (IQ) was a proprietary tool developed by Standard & Poor’s (S&P) to evaluate a stock’s investment characteristics within a universe of companies. It aimed to provide investors with insights into a stock’s medium- to long-term return prospects and downside risk potential.
How did the investability quotient (IQ) work?
Standard & Poor’s introduced the IQ system in 2001 as part of its suite of proprietary tools and analysis platforms. It took into account several factors to rank a stock:
- Credit rating of the company
- Liquidity of the company’s assets
- Overall health and strength of the company
- Volatility of the industry
By evaluating these fundamental aspects, the IQ system generated a single rating, typically ranging from one (indicating poor investment potential) to 100 (indicating strong investment potential). This rating facilitated comparisons between stocks and helped investors make informed decisions.
Evolution into S&P Capital IQ
Over time, the IQ system became an integral component of S&P Capital IQ, a comprehensive platform offering a broad range of tools and analyses for evaluating publicly traded companies and financial markets. S&P Capital IQ provides extensive research, analytics, valuations, and other features to empower investors with comprehensive insights into potential investments.
Special considerations
The IQ system was built upon earlier proprietary systems developed by Standard & Poor’s, including the Stock Appreciation Ranking System (STARS) and Quality Rankings:
- Stock Appreciation Ranking System (STARS): STARS provided qualitative coverage of publicly traded companies, ranking their stock performance potential over six to 12 months.
- Quality Rankings: Introduced in the mid-1950s, this system evaluated over 4,000 common stocks based on the growth and stability of a company’s earnings and dividends.
These systems, including IQ, are now integrated into S&P Capital IQ, offering investors a comprehensive suite of tools and analyses for investment research.
Example of investability quotient (IQ)
S&P Global regularly updates its product offerings, including how reports are calculated or generated. Investors could find the IQ score in company reports alongside other metrics. However, it’s essential to note that ratings were subject to change and should be used as part of a broader investment analysis rather than standalone indicators.
Frequently asked questions
How can investors access the investability quotient (IQ)?
Investors can access the Investability Quotient (IQ) through S&P Capital IQ, a comprehensive platform offering tools and analyses for evaluating publicly traded companies and financial markets.
What factors does the investability quotient (IQ) consider?
The IQ system evaluates factors such as a company’s credit rating, asset liquidity, overall health, and industry volatility to rank stocks.
How are stocks rated in the investability quotient (IQ) system?
Stocks are typically assigned ratings ranging from one (indicating poor investment potential) to 100 (indicating strong investment potential) based on their performance and associated risks.
Is the investability quotient (IQ) a standalone indicator for investment decisions?
No, the IQ rating should be used as part of a broader investment analysis and monitoring effort. It’s essential to consider other factors and conduct thorough research before making investment decisions.
Key takeaways
- The Investability Quotient (IQ) assesses a stock’s investment characteristics and risks based on factors such as credit rating, asset liquidity, company health, and industry volatility.
- IQ is now integrated into S&P Capital IQ, offering investors comprehensive tools and analyses for investment research.
- Investors should use IQ ratings as part of broader investment analysis and monitoring efforts and consider other factors before making investment decisions.
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