ARCC
Ares Capital Corporation
Financial Services · Asset Management · United States · Stock
Score Breakdown
Scored for Safe Long-Term Investing profile
Sub-scores are 0–20 each; Model Score is weighted by your selected investment goal. How it works →
Why Ranked Here
- ARCC's aggregate model score of 33.0/100 is driven primarily by very weak growth (2.0) and momentum (0.8) sub-scores that collectively drag the composite well below average, reflecting limited expansion in key income statement metrics in the filing period.
- The zero theme score (0.0/20) means ARCC receives no uplift from macro trend alignment, which is a meaningful input in the model and prevents the overall score from rising even if other dimensions were stronger.
- The financial health sub-score of 14.0/20, while the highest dimension, is constrained by BDC-typical leverage ratios that limit how much credit the model can assign to balance sheet quality, keeping it from fully compensating for weakness elsewhere.
Why Not Higher
- Growth and momentum sub-scores (2.0 and 0.8 respectively) are among the lowest possible readings, and because these two dimensions reflect the current trajectory of the business as derived from filing data, they structurally cap how high the composite score can go regardless of balance sheet size.
- The dividend sub-score of 6.2/20 falls short of what might be expected for a BDC, suggesting that when the model evaluates FCF coverage of distributions, payout sustainability, and DPS growth CAGR from the 10-K data, the results are less compelling than ARCC's income-focused reputation might suggest.
Data Confidence
7 / 10
High — most data fields present
Research Summary
AI-generated analysis reflects data and conditions as of the report date shown above. Verify any specific figures through primary sources before acting on this analysis.
Ares Capital Corporation (ARCC) is one of the largest publicly traded Business Development Companies (BDCs) in the United States, managed externally by Ares Management. Its core business is providing debt and equity financing to middle-market companies — typically private businesses too large for traditional bank loans but too small to access public capital markets. ARCC's portfolio spans senior secured loans, subordinated debt, and equity co-investments, making it a significant player in private credit markets. The company is structured as a regulated investment company (RIC) and is required to distribute the vast majority of its taxable income to shareholders. The model assigned ARCC a score of 33.0/100, reflecting a company that carries meaningful structural and financial complexity but scores modestly across most dimensions. Financial health, the top sub-score at 14.0/20, acknowledges ARCC's large balance sheet and its role as a scaled lender, though leverage inherent in BDC structures limits this score from being higher. Profitability registers at 12.0/20, consistent with the spread-based, fee-income nature of BDC operations, but margins and returns are constrained by operating costs and credit risk provisions. The dividend sub-score of 6.2/20 reflects some tension between distribution sustainability metrics — FCF coverage and payout ratios when measured through the model's lens — even though ARCC is historically known for steady distributions. Growth (2.0/20) and momentum (0.8/20) are low, signaling limited measurable acceleration in revenue, net income, or earnings trajectory on a filing-derived basis across recent periods. The central research tradeoff for ARCC is between its status as a large, institutionally managed BDC with significant private credit exposure and the model's relatively weak growth and momentum signals. ARCC sits in the 'Monitor Only' research label for a 'Safe Long-Term Investing' goal profile, suggesting that while the business is not speculative in nature, its filing-derived metrics do not currently meet the threshold for a higher-conviction research designation under this scoring framework.
Plain English
Ares Capital is essentially a large lending company that makes loans to mid-sized private businesses that can't easily borrow from regular banks or bond markets. Its model score of 33.0/100 is relatively low, meaning that across key metrics like growth, profitability, and financial health drawn from its annual SEC filing, the numbers don't stand out strongly enough to flag it as a high-conviction research candidate right now. The Medium risk rating reflects that while it's not a highly speculative company, BDCs like ARCC carry leverage and credit exposure that introduce real downside risk if borrowers start defaulting. For a researcher focused on safe long-term investing, this comes up as a 'Monitor Only' — worth watching but not yet scoring highly enough to stand out in the model.
Bull Case vs. Bear Case
Bull Case
- ARCC's financial health sub-score of 14.0/20 is the strongest dimension in its profile, reflecting its position as one of the largest and most scaled BDCs with a substantial, diversified loan portfolio that provides some inherent resilience.
- The profitability sub-score of 12.0/20 indicates that ARCC generates meaningful net income relative to its cost structure, consistent with the spread income model where the company earns returns on a large pool of middle-market loans.
- ARCC's best-fit scoring profile is 'safe long-term investing' at 45.4, meaning that relative to other goal profiles assessed by the model, ARCC's characteristics align most closely with a steady-income, lower-volatility mandate rather than a speculative one.
Bear Case
- The growth sub-score of 2.0/20 is critically weak, indicating that year-over-year revenue, net income, and EPS growth as derived from the FY2025 10-K filing are minimal or stagnating, which is a meaningful concern for long-term compounding.
- The momentum sub-score of 0.8/20 — the lowest across all dimensions — signals that quarterly improvements in revenue, earnings, and margins within the filing period are essentially absent, suggesting no near-term acceleration in business fundamentals.
- The theme sub-score of 0.0/20 indicates that ARCC's business model shows no measurable exposure to the macro investment themes tracked by the model, which may limit re-rating potential as capital flows toward thematic opportunities.
What Could Change the Picture
Bullish Triggers
- A measurable improvement in year-over-year net investment income growth and EPS expansion as reflected in a future 10-K filing would directly raise the growth sub-score and signal that the portfolio is generating accelerating returns.
- Demonstrated improvement in quarterly earnings or margin progression — resulting in a higher momentum sub-score above 5.0 — would indicate that the business is gaining operating traction and not merely treading water on core income metrics.
Bearish Triggers
- Evidence in a future filing of rising non-accrual rates or material credit losses within the middle-market loan portfolio would directly pressure the profitability and financial health sub-scores and deepen concern about the bear case.
- A decline in the financial health sub-score driven by increased leverage or deteriorating interest coverage ratios — the currently strongest dimension — would remove the primary structural support for the current model score and push it meaningfully lower.
Red Flags
- The combination of near-zero growth (2.0/20) and near-zero momentum (0.8/20) sub-scores from SEC filing data raises a concern about whether ARCC's earnings and revenue trajectory is deteriorating or stagnating in a higher-cost-of-capital environment.
- A dividend sub-score of only 6.2/20 for a company structured specifically to distribute income suggests the model identifies meaningful tension in FCF payout coverage or distribution growth sustainability as derived from filing metrics.
- The leverage profile inherent in BDC operations, which the financial health score of 14.0/20 only partially offsets, represents a structural risk factor if credit conditions in the middle-market tighten or default rates among portfolio companies rise.
Risk Profile
Medium RiskThe Medium risk rating for ARCC reflects that while it is a large, established BDC with a diversified portfolio, the company operates with meaningful financial leverage typical of the BDC structure and is exposed to credit risk across hundreds of middle-market borrowers whose performance can deteriorate in economic downturns. Unlike a typical operating company, ARCC's risk profile is heavily tied to credit cycle dynamics and the ability of its portfolio companies to service debt, making the medium designation appropriate rather than low.
Key Catalysts to Watch
The key factors to monitor for ARCC include changes in the credit quality and non-accrual rates of its middle-market loan portfolio as disclosed in quarterly and annual filings, as well as the trajectory of net investment income relative to distributions — the metrics most directly tied to the dividend and profitability sub-scores. Any shift in the broader private credit market, including changes to leverage availability or middle-market default trends, would be the most material filing-derived signal to watch.
This report is for educational and research purposes only. It does not constitute financial, investment, legal, or tax advice — always conduct your own due diligence before making investment decisions.