Moody’s repurchases and dividends exceeded cash generated after capital spending by $998 million in the first half of FY2026. Cash fell despite stronger earnings and operating cash generation. Business-sale gains also amplified quarterly earnings growth. The ratings and analytics business therefore presents two different questions: how durable earnings are, and how quickly management distributes the cash. Cash-flow statement; statement of operations
1. Repurchases Shrink the Financial Cushion
Cash fell despite stronger operating cash generation.
1-1. Cash Falls While Customer Receivables Decline
Compare cash with receivables: the cash decline did not coincide with an expanding balance of amounts owed by customers. Receivables include both invoices awaiting payment and revenue earned but not yet billed, so they are not simply unpaid customer bills.
| Item ($ millions) | Dec. 31, 2025 | June 30, 2026 | Change |
|---|---|---|---|
| Cash and equivalents | 2,384 | 1,467 | −38.5% |
| Accounts receivable, net | 2,024 | 1,919 | −5.2% |
| Property and equipment, net | 722 | 754 | +4.4% |
| Intangible assets, net | 1,866 | 1,749 | −6.3% |
| Goodwill | 6,368 | 6,318 | −0.8% |
| Total assets | 15,830 | 14,675 | −7.3% |
| Total liabilities | 11,625 | 11,509 | −1.0% |
| Total equity, including minority interests | 4,205 | 3,166 | −24.7% |
Changes are calculated from reported balances. Inventory is not separately reported. Property and equipment increased, while acquired intangible assets declined as amortization—the gradual recognition of their cost as an expense—reduced their carrying value. Goodwill, the acquisition premium remaining after identifiable net assets are valued, changed with acquisitions, divestiture adjustments and currency effects. These accounting balances should not be read as market valuations. 10-Q, p. 8; Notes 3 and 8
1-2. Debt Is Stable, but Lease Commitments Grow
Borrowings at their balance-sheet value edged down from $6,994 million to $6,946 million. Payables and accrued liabilities fell from $1,304 million to $1,086 million; total deferred revenue, customer billings not yet earned, rose from $1,638 million to $1,648 million. These operating obligations differ from interest-bearing debt.
Of $7,128 million in debt principal—the face amount owed—$1,071 million, or a calculated 15.0%, matures in 2027–2028; another $400 million matures during 2029. The annual maturity table cannot isolate the exact rolling three-year window. The average stated interest rate, weighted by each borrowing’s principal, is approximately 3.2%, before interest-rate swaps and fees.
Access to the new headquarters helped lift assets representing the right to use leased property from $282 million to $504 million. Operating lease liabilities rose from $357 million to $576 million. Balance sheet; Notes 13–14
1-3. Buybacks Outweigh Accumulated Profit
Retained earnings—accumulated profit after dividends—increased from $17,853 million to $19,027 million. However, treasury stock—the accumulated cost of repurchased shares, deducted from equity—grew from $14,978 million to $17,204 million. Common stock and capital surplus together rose from $1,679 million to $1,756 million, while accumulated other comprehensive losses increased from $500 million to $554 million. Those losses capture certain accounting movements outside net income, including currency and hedging adjustments. Equity contracted because these deductions outweighed retained profit, not because operations lost money. Balance sheet; Note 12
2. Operating Growth Is Real; Sales of Businesses Add Another Lift
Operating profit grew faster than revenue, independently of the business-sale gains.
2-1. The Margin Improvement Excludes Business-Sale Gains
The operating margin shows the share of sales left after operating expenses; the net margin also includes interest, taxes and business-sale gains.
| Item ($ millions except margins) | Q2 2024 | Q2 2025 | Q2 2026 | Annualized growth, 2024–26 |
|---|---|---|---|---|
| Revenue | 1,817 | 1,898 | 2,185 | 9.7% |
| Operating income under U.S. accounting rules | 775 | 818 | 1,046 | 16.2% |
| Operating margin | 42.7% | 43.1% | 47.9% | — |
| Net income attributable to Moody’s | 552 | 578 | 878 | 26.1% |
| Net margin | 30.4% | 30.5% | 40.2% | — |
Three observations span two years, so the calculated annualized growth rates cover two years. Margins divide each profit figure by the corresponding revenue. 2025 10-Q, p. 7; 2026 10-Q, p. 6
Revenue rose a calculated 15.1%, while operating income rose 27.9%. Operating profit therefore grew approximately 1.8 times as fast as sales in this comparison; that relationship is not a forecast. Below operating income, $181 million of divestiture gains supplied a calculated 45.4% of the $399 million pretax-profit increase, from $772 million to $1,171 million. These gains are not recurring customer revenue. Statement of operations; Note 11
Diluted earnings per share, which spreads profit across average shares including potentially dilutive awards, rose from $3.21 to $5.03. Holding the prior-year share count constant, approximately $1.66 of the increase came from higher profit; applying the lower current-year share count to current-year profit adds approximately $0.16. Average diluted shares fell from 180.2 million to 174.5 million. Repurchased shares are reported as treasury stock, rather than canceled shares. Statement of operations; Note 5
2-2. Costs Grow More Slowly Than Sales
Operating expenses rose from $489 million to $518 million, and selling, general and administrative expenses from $443 million to $463 million. Profit grew faster than sales because total operating expenses grew more slowly. Staffing and technology infrastructure are part of the cost base, but compensation includes variable incentives; the filing does not provide a clean split between fixed costs and costs that vary with activity. Statement of operations; Management’s Discussion and Analysis
The earnings release also says business divestitures moderated expense growth. The operating-margin improvement excludes the gains on those sales, but the comparison still reflects changes in which businesses Moody’s owns. Q2 2026 earnings release, operating expenses and margin
Adding back only restructuring and asset-abandonment charges produces calculated operating income of $1,078 million versus $846 million: $1,046 + $32 and $818 + $27 + $1. This limited non-GAAP comparison—an adjustment to earnings reported under U.S. accounting rules—retains depreciation and amortization, the allocation of asset costs over their useful lives. It does not establish a fully normalized earnings level because other transition costs remain. Statement of operations; Note 9
3. Stronger Cash Generation Does Not Cover Distributions
Shareholder payouts exceeded internally generated cash after capital spending.
Financing outflows absorbed more than the operating inflow. H1 refers to the first six months of each year.
| Item ($ millions) | H1 2025 | H1 2026 | Change ($ millions) |
|---|---|---|---|
| Operating cash flow | 1,300 | 1,718 | +418 |
| Investing cash flow | 98 | 21 | −77 |
| Financing cash flow | −1,780 | −2,629 | −849 |
| Ending cash | 2,174 | 1,467 | −707 |
| Capital additions | 160 | 186 | +26 |
| Free cash flow | 1,140 | 1,532 | +392 |
Changes and free cash flow are calculated from reported figures. Free cash flow, a non-GAAP measure, equals operating cash less capital additions: $1,718 − $186, versus $1,300 − $160. Buybacks of $2,165 million plus dividends of $365 million exceeded it by $998 million. No new borrowing proceeds appear in the first-half cash-flow statement; divestitures brought in $200 million. The ending-cash comparison above is year over year, while the balance-sheet table compares June with the previous December. Cash-flow statement, p. 9
The $998 million payout gap is not the total cash decline because other cash movements also matter. Cash fell $917 million from December: $1,718 million of operating inflows plus $21 million of net investing inflows, less $2,629 million of financing outflows and a $27 million exchange-rate effect. Financing outflows also included $120 million for share repurchases related to stock compensation and excise-tax payments on repurchases, outside the $2,165 million buyback figure used above. Cash-flow statement
Operating cash divided by consolidated net income was a calculated 1.29, 1.08 and 1.12 in H1 2024–2026, respectively. The inputs, in millions, were $1,461/$1,130, $1,300/$1,204 and $1,718/$1,540. Thus, in the latest period, operating activities generated about $1.12 in cash for each dollar of reported profit. This measures cash conversion, not earnings reliability. The latest period added back $248 million of depreciation and amortization and $117 million of share compensation, while removing the $181 million business-sale gains from operating cash flow. 2025 cash-flow statement, p. 10; 2026 cash-flow statement
Changes in payables and accruals consumed $193 million, versus $341 million previously, helping cash growth. Changes in other current assets supplied $87 million, compared with a $25 million use a year earlier. These movements in operating assets and liabilities helped cash growth alongside higher profit; the cash-conversion ratio should be read with those timing effects in mind. Cash-flow statement
Capital additions equaled a calculated 4.4% of H1 revenue, or $186/$4,264. Management describes spending as supporting innovation and operating capabilities but gives no split between maintenance and growth spending. Share compensation was a calculated 2.7% of revenue, or $117/$4,264; the expense is added back in operating cash flow because it is noncash, while share awards can dilute existing shareholders’ ownership. Related share repurchases can still use cash, as noted above. Cash-flow statement; Non-GAAP Financial Measures
4. Ratings Demand Strengthens, but Execution Costs Remain
The growth engine is increasingly ratings revenue tied to financing transactions.
These measures distinguish fees from new deals from subscription and monitoring revenue.
| Q2 measure ($ millions unless stated) | 2025 | 2026 | Change |
|---|---|---|---|
| Ratings segment external revenue | 1,010 | 1,260 | +24.8% |
| Ratings transaction revenue | 663 | 891 | +34.4% |
| Analytics recurring revenue | 852 | 915 | +7.4% |
| Analytics recurring share of segment revenue | 95.9% | 98.9% | +3.0 percentage points |
Changes and recurring-revenue shares are calculated from reported figures. Transaction fees depend on financing activity; recurring analytics revenue includes subscriptions and software maintenance. The higher recurring share also reflects lower transaction revenue, from $36 million to $10 million. It does not prove longer customer contracts. Moody’s attributes ratings strength partly to financing for technology infrastructure; the figures establish strong activity, not a proven cycle peak. Note 2; Management’s Discussion and Analysis, segment discussion
The earnings release attributes the decline in analytics transaction revenue primarily to the Learning Solutions divestiture. The higher recurring share therefore partly reflects the sale of a business, rather than a shift in customer purchasing toward subscriptions. Q2 2026 earnings release, segment results
The restructuring program, expanded in July after the quarter ended, targets $300–350 million of annual savings, with expected program cash outlays of $285–330 million through 2028. Savings remain management estimates, and some are intended for reinvestment. Separately, the Regulatory Solutions sale carries up to $119 million of remaining conditional consideration—additional proceeds dependent on post-closing conditions. That is not cash already received. Notes 9 and 11
Legal exposure remains uncertain. Note 15 distinguishes probable losses that can be reasonably estimated and recorded as liabilities from material, reasonably possible contingencies that may require disclosure without a recorded liability. It warns that outcomes can differ from estimates; the absence of a quantified loss does not eliminate ratings-related legal or regulatory risk. Note 15
5. Further Buybacks Depend on Cash, Not Reported Earnings per Share
Ratings growth and wider operating margins strengthened the underlying business. However, financing-sensitive fees and nonrecurring sale gains limit how confidently the earnings increase can be extrapolated. Capital allocation favored repurchases in actual dollars, while cash reserves declined. Sustaining that payout pace would require stronger cash generation, further asset proceeds, additional borrowing or a continued drawdown of liquidity.
The July 22 outlook makes that cash constraint more concrete: Moody’s raised its full-year repurchase guidance from approximately $2.5 billion to up to $3.0 billion, while lowering free-cash-flow guidance from $2.8–3.0 billion to $2.7–2.9 billion. At the repurchase ceiling, buybacks alone would exceed forecast free cash flow before dividends. These are management estimates; repurchases remain subject to available cash and other capital-allocation decisions. Q2 2026 earnings release, outlook
This analysis is based on filings submitted to the U.S. Securities and Exchange Commission and is provided for informational purposes only. It is not investment advice. Primary source: SEC Form 10-Q, filed July 23, 2026.