Credit rating refers to assessment of the financial position of the company based on various parameters, in simple words credit rating refers to the ability of a company or an individual to repay its debt on time. Given below are some of the uses of credit rating –
- Credit rating is used by the investors for making investment decision about the debt or equity of company, based on the credit rating which company has received from credit rating agency.
- Credit rating is also used by a company; because a company which has received good credit rating can raise funds easily from either capital markets in the form of issue of equity shares or from debt markets in the form of bonds.
- Credit rating has regulatory importance also because if company is going for initial public offering than it is compulsory for it to get credit rating before issuing shares to public, so that investors know about the company before applying for the initial public offering.
- Credit rating is also used by companies when they take loan from the banks or other financial institutions.
- Credit rating is also used to judge about the overall operational efficiency and efficiency of the top management in running the business of a company.