General methodology: It falls into two major parts — first, analysis of the risk factors affecting debt repayment; and second, description of results from the above analysis in the terms of the credit rating industry. The general methodology contains eight components: environment for debt repayment, ability for wealth creation, sources of debt repayment, ability of debt repayment, grading, review of grading, simulation test, and credit grades.
The overarching logic of Dagong’s methodology requires taking the wealth creation capability of the debtor as primary source of debt repayment. Dagong breaks down all sources of debt repayment and lists them according to the forecast about all the factors affecting their ability for wealth creation, before measuring the risk, or the deviation of every useful source of debt repayment from the wealth creation ability. Out of the deviation analysis, Dagong builds the useful debt repayment sources into a structure of the total debt repayment ability, outstanding debt repayment ability, and incremental debt repayment ability. By utilizing relevant data, Dagong adjusts the deviation rate as it stands for the integrated risks. It distinguishes the security level of every useful debt repayment sources, and grades the security level of the above three types of debt repayment ability. It builds the database for comparative research of risk factors, which in turn generates evidence for the review and readjustment of credit rating. Then come the simulation test for diverse risk factors and forecast of the risks in prospects, from which the key factor indexes are ascertained, and are factored into an index of progressive matrix. Building inter-relations among all the risks in the real world, and explaining them logically, is Dagong’s principle when it comes to make its credit rating methodology into one with universal value. This is Dagong’s principle and its general methodology. It represents the beginning of a great change in the how the real-world credit risks are to be rated and presented.