Credit rating Companies
A company is an organized body engaged in doing business with certain rules and regulations prescribed within them selves. Unlike other forms such as proprietorship and partnership, company form of business usually involve very large amount of funds and material flow. Apart from their inbound rules, company form of business needs to file many reports as required by company Law.
Credit worthiness of company
Credit worthiness of company is a yard stick which measures the efficiency in paying out its debts in time. The company which has very high efficiency in terms of funds management will always have very good credibility. Credibility of the company is always needs to be maintained at very high level to improve the business.
Need for Rating
A company is always liable for its creditors and investors for the huge funds, needs to maintain a very good credit policy and terms to improve its business. To evaluate strengths, credit worthiness and to analyze overall efficiency, credit rating is very essential. In order to study the business flow, periodic analysis is inevitable.
Credit Rating is process which analyses and provides rating on business performance by considering monetary and non monetary items. It can also be termed as rating process of company’s day to day business activities by handling financial, management and other relevant data and providing a rating on the arrived results.
Credit Rating Company
These are independent bodies which provide information on company’s credit worthiness for payment of certain amount of fee. These agencies never insist on any decision to be made on the company dealings. It is only up to the common man to finalize. There are number of agencies in and around the world which conduct credit rating process.
Please the find below list of credit rating companies and countries they operate.
• A. M. Best (U.S.)
• CRISIL (India)
• Baycorp Advantage (Australia)
• ICRA limited (India)
• Dominion Bond Rating Service (Canada)
• CARE Ratings (India)
• China Credit Information Service (China)
• Fitch Ratings (U.S.)
• Japan Credit Rating Agency (Japan)
• Moody's Investors Service (U.S.)
• Standard & Poor's (U.S.)
• Rating Agency Malaysia (Malaysia)
• Egan-Jones Rating Company (U.S.)
Credit rating process involves measuring of critical items during the course of its business. Rating process of each agency shall vary according to the business and country they operate. It is up to the user to have clear reading by browsing through the websites
of the agencies. One can assure that the core items which involve in the credit rating process shall always consists the timely payment to suppliers, repaying loans, composition of secured and unsecured loans and fixed assets and current assets ratio. Not only on the balance sheet and profit and loss account items, credit rating also emphasizes on existing credibility, period of operation in such business, number of employees and size. In short, Credit rating analyses the repaying capacity of the company by considering frequency of late payments, volume of outstanding debt and credit terms and policy in use. To give an outline of credit rating process, rating steps which are usually followed by the agencies are listed as primary guidance. Gathering of relevant information, Meeting with management and relevant staffs, analysis of the relevant risks on financial performance, rating is prepared and forwarded to management, feedback from management is obtained, a rating panel is formed and the relevant issues if any to be discussed, then ratings are communicated directly to management.
Types of rating
The credit rating analyses the performance of business, but there are specific types of such analysis which concentrate on variety of concepts. Each type of analysis concentrates on the specific area of performance. Few are briefed below.
Bond Rating insists importance on funds invested in Bonds. Equity rating concentrates on volume of variety of capital and its performance. Other than these two, rating on borrowers is also done as one of the branch of credit rating. With various types of funds managed by the company, rating code for each type of fund put into analysis shall vary. For example fixed deposit and short term funds have separate type of rating and coding. Ratings are depicted in the mixture of alphabets and numerals which convey the credibility. Types of rating very precisely discussed above are not conclusive and may vary as per the business requirement.
Benefits of credit rating
As discussed above credit rating process critically analyses the strength and weaknesses of business, its benefit cannot be explained in one word. It guides the management to take better decisions on funds management, inventory management, credit policies and venturing new projects. It gives assurance to the creditors and investors on the amount to be paid in future and enhances the investing trend by attracting the new investors. Good credit rating widens the scope of marketing and the confidence in the capital market.
Doing business is always at risk. The volume of risk and return needs to be measured regularly. Credit rating on company measures both aspects to give clear picture on day to day business activities. Credit Rating companies help s us to know better position.