Posted in Finance, Accounting and Economics Terms, Total Reads: 1272
Definition: Credit Rating
A credit rating evaluates the creditworthiness of a debtor business or government. It is an assessment made by a credit rating agency about the ability of a business to pay back its debt and its likelihood of default. Credit ratings are done on the basis of the quantitative and qualitative information obtained about the business and the non-public information to which the credit rating analysts have an access to.
The credit rating is a financial indicator of the company/government to pay off its debt. It is used to find out the ability of the government to pay its debt obligations.A poor credit rating indicates that a credit rating agency holds the opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the company's history and long run economic prospects. Some of the most credible credit rating agencies are Standard & Poor’s, Moody’s and Fitch.
Some of the credit ratings and their meanings are given below:
Highest possible rating. Means extremely strong ability to meet financial commitments.
Fairly strong capacity to meet financial commitments but is susceptible to adverse economic situations.
Sufficient ability to meet financial commitments but more prone to economic fluctuations.
Less susceptible in the near term but is prone to major financial and economic uncertainties
Currently vulnerable and dependent on favourable financial and economic conditions to meet financial commitments