Rating scale, Financial Management

Assignment Help:

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.


Related Discussions:- Rating scale

Calculate the net present value of cash flows, Assume a firm has the follow...

Assume a firm has the following cash flows for the next five years: $50,000, $100,000, $150,000, $200,000, and $300,000. We start this business with an initial investment of $250,0

Example on compound value of the single flow, Q. Example on compound value ...

Q. Example on compound value of the single flow? Mr. X invests Rs. 1000 at 10% is compounded yearly for three years. Compute value after three years. FV = PV (1+i) n FV

Explain about inventory turnover ratio, Q. Explain about Inventory Turnover...

Q. Explain about Inventory Turnover Ratio ? Inventory Turnover Ratio: - Definite items of inventory are slow moving. It signifies that their consumption is quite slow and capit

Visible venture capital, It is the organized and established firms that con...

It is the organized and established firms that constitute the venture capital industry.

A-credit, A-Credit is the highest credit grade existing as allotted to a bo...

A-Credit is the highest credit grade existing as allotted to a borrower by a lender. Lenders use a credit grading system to make the borrowers eligible. The more the borrower's cre

Determining the appropriate rates in valuation process, After estimat...

After estimating the cash flows, the next step is to determine the appropriate interest rate that should be used to discount the cash flows. The minimum return re

Compare diversifiable and nondiversifiable risk, Compare diversifiable and ...

Compare diversifiable and nondiversifiable risk. Which do you think is more important to financial managers in business firms? Diversifiable risk is able to be dealt with by of

Constructing the theoretical spot rate curve for treasuries, The following ...

The following treasury issues can be included for the construction of the curve: On-the-run treasury issues. On-the-run treasury issues and sele

Budget, Details on budgetary control process

Details on budgetary control process

Example on walters dividend model, Q. Example on Walters dividend model? ...

Q. Example on Walters dividend model? Example: - The following information is obtainable in respect of a firm: Capitalisation Rate (Ke)                     = 10% Earning

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd