Explain the different types of financial ratings. Explain their usefulness to investors and banks, as well as
Question:
Explain the different types of financial ratings. Explain their usefulness to investors and banks, as well as the impact for bond issuers and/or companies taking out loans.
Explain the usefulness of a mandatory rating for an investor and the resulting consequences for an issuer.
- Mandatory rating! (No need to describe the differences between internal and external internal ratings (rating agency)
- Usefulness: risk measurement; gives an assessment of the repayment capacity of the issuer
- Main consequence for the issuer: determination of the risk profile for investors and therefore of the risk premium and therefore of the cost of financing of the issuing company.
- Another consequence: access to investors; some investors cannot finance companies with a rating below a certain threshold
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young