Question

Which of the following are factors in determining a company's credit rating?

A) Its debt-equity ratio, current ratio, the average interest rate paid on loans outstanding, and prior-year gross profit margin.
B) Its default-risk ratio, debt-asset ratio, and interest coverage ratio.
C) Its loans outstanding as a percentage of net income, dividend payout ratio, and debt-equity ratio.
D) Its total liabilities as a percentage of total shareholders' equity, prior-year interest payments as a percentage of net income, and prior-year return on capital investment.
E) A company's current ratio, accounts payable as a percent of net income, and prior-year operating profit margin.

Answer 1

The factors that determine a company's credit rating include the debt-equity ratio, current ratio, average interest rate on loans, and prior-year gross profit margin.

Step-by-step explanation:

A company's credit rating is determined by various factors that assess its financial health and ability to repay its debts. Factors that play a significant role in determining a company's credit rating include:

1. The debt-equity ratio, which measures the proportion of a company's total debt to its shareholders' equity.
2. The current ratio, which measures a company's ability to pay off its short-term liabilities using its short-term assets.
4. The average interest rate paid on loans outstanding, which reflects the company's borrowing costs.
5. The prior-year gross profit margin, which indicates the company's profitability.

These factors help credit rating agencies evaluate a company's creditworthiness and assign it a credit rating.