Rating scale, Financial Management

Rating denote an issuer's ability to respond to adverse changes in circumstances and economic conditions. The rating scale is generally differentiated into various levels of credit viz., high investment grade, investment grade and speculative grade. The scale and corresponding definitions are as follows:

High Investment Grades

AAA Highest Safety

Debentures rated 'AAA' are judged to offer highest safety of timely payment of interest and principal. Though the circumstances providing this degree of safety are likely to change, such changes, as can be envisaged, are most unlikely to affect adversely the fundamentally strong position of such issues.

AA High Safety

Debentures rated 'AA' are judged to offer high safety of timely payment of interest and principal. They differ in safety from 'AAA' issues only marginally.

Investment Grades

A Adequate Safety

Debentures rated 'A' are judged to offer adequate safety of timely payment of interest and principal; however, changes in circumstances can adversely affect such issues more than those in the higher rated categories.

BBB Moderate Safety

Debentures rated 'BBB' are judged to offer moderate safety of timely payment of interest and principal for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and to repay principal.

Speculative Grades

BB Inadequate Safety

Debentures rated 'BB' are judged to carry inadequate safety of timely payment of interest and principal; while they are less susceptible to default than other speculative grade debentures in the immediate future, the uncertainties that the issuer faces could lead to inadequate capacity to make timely interest and principal payments.

B High Risk

Debentures rated 'B' are judged to have greater susceptibility to default; while currently interest and principal payments are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal.

C Substantial Risk

Debentures rated 'C' are judged to have factors present that make them vulnerable to default; timely payment of interest and principal is possible only if favorable circumstances continue.

D In Default

Debentures rated 'D' are in default and in arrears of interest or principal payments or are expected to default on maturity. Such debentures are extremely speculative and returns from these debentures may be realized only on reorganization or liquidation.

Posted Date: 9/11/2012 1:21:15 AM | Location : United States







Related Discussions:- Rating scale, Assignment Help, Ask Question on Rating scale, Get Answer, Expert's Help, Rating scale Discussions

Write discussion on Rating scale
Your posts are moderated
Related Questions
a) Marketing might be vital to an organisation such as WHSG for several reasons, including: • The need to be a focus for the right kind of students to the school (there are riva

Question 1: (a) Advise a risk averse individual whether to invest his capital in a money market or capital market. Justify your answer. (b) Explain five types of Money marke

Q. Show Factors influencing participation? Factors influencing participation: several research studies have shown that the intensity of participation depends on four factors.

Q. What is Dependent Care Expenses? Dependent Care Expenses - Qualified child care expenses would allow a taxpayer this computed credit against tax. Amounts can be found on the


On the basis of transferability, debentures can be classified as registered and unregistered debentures. Unregistered debentures (or bearer debentures) are freely

Q. What do you understand by Business cycle? Business cycle: business cycle refers to the alternate expansion and contraction in the general business activity. in a period of t

Globalization of the Financial Markets There are many economies in the world that have opened their gates for foreign participants and companies. Trading takes place not only i

Return on Investment (ROI) In accounting it is a measure of the earning power of an industries asset. A high return on investments is desirable. ROI is widely described as net

Illustrate about the Financial Management Individual businesses face problems dealing with acquisition of funds to carry on their activities and with determination ofoptimum