Question

g Which of the following are the three factors used to determine a company's credit rating? Its current ratio, its debt-to-equity ratio, and its interest coverage ratio The percentage of net profit used to make payments on the company's total debt outstanding in the prior year, the company's inventory turnover ratio, and the amount of cash the company keeps in its retained earnings account A company's current ratio, how much it has in accounts receivable, and how many times it has cut its dividend in the past three years Whether the company's prior-year current assets are big enough to cover its upcoming-year interest payments, the company's operating profit margin, and whether the company's total debt exceed its total shareholders' equity Its debt-to-equity ratio, its interest payments, and its debt-to-assets ratio

Answer 1

The three factors used to determine a company’s credit rating are its current ratio, its debt-to-equity ratio, and its interest coverage ratio.

Explanation:

• A credit rating comes in the list of the company’s annual performance targets. It helps to decide the company’s current year progress.  
• A company’s debt-to-equity ratio is used to know the debt of a company as compared to the total equity. If this ratio is high, the company is taking on much debt.  
• The current ratio marks a way to compute the liquidity of the company. It shows how well a firm is placed to meet the short term obligations. Broadly, a 2-1 ratio is considered a good ratio.
• The interest coverage ratio tells how well the company may pay its future loan payments. If the ratio is higher than 3-to-1, it suggests that the company is in a good position to make future payments.