Question

In: Accounting

Is it easy or difficult to receive an ‘AAA’ credit rating? How many companies receive a...

Is it easy or difficult to receive an ‘AAA’ credit rating? How many companies receive a AAA credit rating in 2016 and 2017? (You can google to find the companies)​

Solutions

Expert Solution

'AAA' rating is the most worthy and rarest credit rating measures. AAA is the highest possible rating assigned to an issuer's bonds by credit rating agencies. An AAA-rated bond has an exceptional degree of creditworthiness because the issue can easily meet its financial commitments. The ratings agencies Standard & Poor's (S&P) and Fitch Ratings use the AAA to identify bonds with the highest credit quality, while Moody's uses AAA is the top credit rating.
Since it is highest credit rating provided to any company hence its not difficult its very very difficult to receive AAA credit rating.
The rating agencies are careful to point out that their opinions exist "within a universe of credit risk", So, there is less chance of an AAA bond defaulting than a BBB one, but still some danger.

There are only two companies which possess AAA credit rating are as folliws :-

1) MICROSOFT

2) JOHNSON & JOHNSON

Explanation -

two companies that Standard & Poor’s believes are the epitome of financial strength and resiliency. The first name comes as no surprise and its Johnson & Johnson (JNJ). Johnson & Johnson is heavily diversified and always profitable. It also sports a very healthy debt-to-equity ratio of 0.28 and generated $19.28 billion in operating cash flow over the past 12 months. The dividend yield is a bonus at 2.81%.

Microsoft Corp. (MSFT) is also deserving of the AAA rating. Microsoft is consistently profitable and its revenues continue to climb higher annually, which has a lot to do with the company’s broad diversification. Microsoft has a debt-to-equity ratio of 0.58 and has generated $30.58 billion in operating cash flow over the past 12 months. The dividend yield is 2.88%.


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