Question

Explain why credit ratings are important to the users of financial statements, specifically credit underwriters and how these impact ability to obtain debt upon request.

Answer 1

Credit Rating act as a link between Risks and return. It tells and shows a clear image o the borrower and his paying capability so that the investors know very well where are they investing their funds. Credit Rating is of utmost importance to users of financial statement, specially Underwriters.

* It helps Underwriters take better investment decision and guarantee. Underwriters are the key party involved in issue of shares which underwirte shares when they are not sold in market. For this they need to know the credit rating of the company and its possible risk and return.

* High credit rating is good for company i.e the money is safe.

* Better the credit rating more are the opportunities for the companies to take easy loans.

* Auditors ensure from the credit rating and financial statements that no information is misleading or fraud is going on.

These help and increase a company's or an individual's ability to obtain debt upon request. These days banks want to provide loans to secure hands. Credit Rating is a mesure that tells about the company or individual's credit worthiness i.e. they tell whether the borrower is safe to provide loan to. Higher the credit rating, more easy will be for the person to take loan from financial market and they may also get it at lower rate of interest if the score is very good.