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In evaluating the instruments in question, rating agencies takes into account the various risks involved in servicing of instruments. They undertake business analysis, financial analysis, management evaluation and fundamental analysis. They also take into account the regulatory and competitive environment faced by the company and other relevant factors.
The rating agency also evaluates the management risk as judged by the track record of the management, planning and control system, managerial expertise, tax planning and expansion plans of the company. In general, the goals and objectives of the company, its sales and asset growth, capacity to overcome adverse economic and market conditions, etc. will be assessed by the rating agency.
Under fundamental analysis, evaluation is carried out for the equity earnings per share, book value, capital and sales turnover, management, debt-equity ratio, current assets to liabilities ratio, contingent liabilities, etc. Besides, the asset quality will be judged by the risk element of various assets and interest and tax sensitivity of the company.
