Credit rating agency gives the rating to the company’s ability to pay back the debt. Or in other words does company has the ability to give back the money in future that was borrowed in past.
The rating agencies are important part of the financial market, because they give investors and debtors insights about the company performance.
The credit rating agencies comprehensively examine the share market listed companies, after examining, they exhort the investors indirectly that should they invest in the company or not? They provide you the insights about the company, which aids banks and creditors, to loan the company or not. So indirectly they play a vital role in the corporate world.
They analysis the overall financial condition of the company, top management, current legal issues with government and backs, political relationship with the government so that investors can take the wise decision before making investment.
As per the research credit rating agencies have been very helpful in United States of America.
For instance if rating agencies give the higher rating, it means the company is investment friendly. Or if company gets a low rating, then it implies you are investing on your own risk so as to avoid risks rating agencies try to make comprehensive assessment about the company growth.
They try to create the transparency in the financial market, and rightly examine the financial condition of the company.
These agencies also monitor the soundness of the borrowers by their own methods. Each rating agencies in India has own assessment and evaluation process. For that they employ professional staff who can measure the risk in feasible manner.
They use the secret information about the company while assessing the company details. They gather information from secret sources, then analyses and interpret information, and for investors it is not easy to evaluate the company’s credit. That is the reason investors have trust on these agencies.
The higher rating of the company implies that it is good for making an investment. The business of credit rating agencies is totally dependent on the right analysis, therefore they don’t make wrong conclusion or indirectly involves with the company because one misjudgment damage the reputation of the rating agencies. So as to maintain the credibility they don’t indulge in any fix up.
Hence majority of investors don’t have the analytical knowledge, but the credit rating agencies provide the right analysis and report about the company’s financial status, and this helps the investor to make the right investment.