Capital Allocation Rating

The capital allocation rating represents Morningstar's assessment of the quality of a company's capital allocation, or how well its leadership team uses cash. Analysts assign one of three ratings––Exemplary, Standard, or Poor––and judge capital allocation from an equity holder's perspective.

Analysts consider a company's investment strategy and valuation, balance-sheet management, and dividend and share buyback policies. Corporate governance factors are considered only if they are likely to materially affect shareholder value, through either balance-sheet, investment, of shareholder distributions. Ratings of Exemplary, Standard, or Poor are determined on a forward-looking and absolute basis. The Standard rating is most common, as most managers will exhibit neither exceptionally strong or poor capital allocation.

Ratings published before Dec. 9, 2020, were determined using a different process. Beyond investment strategy, financial leverage, and dividend and share buyback policies, analysts also considered execution, compensation, related party transactions, and accounting practices.