![]() ![]() Interest coverage ratio – Reflects how many times the issuer can pay interest on debt obligations, using its operating income (or earnings).A declining ratio is better than an increasing one because it implies the company is paying off its debt and/or growing earnings. A higher ratio suggests that the company may have more difficulty servicing its debt. Debt to operating income ratio – Indicates the ability of a company to pay its debt using operating income. ![]() If debt to equity ratio is more than 2, it means that to finance its operations, the issuer has more than twice the amount of debt compared with equity. A high level of debt suggests higher risk. ![]() Debt to equity ratio – Measures how much debt an issuer is using to finance its assets and operations, as compared with the issuer’s equity.Some useful financial credit metrics that you could look out for are: One way is to look at the company’s solvency ratios such as interest coverage ratios and other credit metrics. This will help you to examine if the company is able to meet its debt obligations, including the bond you may be considering. You should find out more about the issuer, profitability of the business and track record of prior bond issues, if any. Furthermore, as the ratings are based on information available at the time the rating is assigned, they are subject to revision or withdrawal.Īs an issuers’ credit worthiness can change quickly, there is no assurance that any revisions to the ratings will be made in a timely manner. ![]() They are only statements of opinion by the relevant credit rating agency and are not recommendations to invest. For example, if the issuer feels that their target investor markets are sufficiently familiar with them and may even regard them as being more creditworthy than a credit rating may have suggested.įor the same reason, smaller and less frequent issuers may also not want to bear the cost of rating fees if the bonds are meant for a domestic market that already knows them.įor such unrated issuers and bonds, you should consider other measures of the issuer’s creditworthiness and the characteristics of the bonds when deciding whether to invest in the issuer’s bonds.Ĭredit ratings have their limitations and should not be your sole consideration when deciding whether a bond should be included in your investment portfolio. Some bond issuers may not seek a credit rating. Not all bonds are rated by international or major rating agencies. The coupon rates for different bonds will vary based on the credit quality of the issuer and the credit rating.
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