Bond Ratings
A bond rating is a grade that shows the soundness of a bond. Bonds are crucial in an organization (Apkarian, 2018). Moody’s Standard & Poor’s, and Fitch are the three primary rating organizations that assess the dependability of bonds. The score is based on the financial statements and statistics of the company under consideration. Bond ratings are critical in persuading investors of the bond’s performance and reliability.
Bonds with a higher rating are safer and more reliable investments. However, bonds with a lower grade are referred to as junk bonds. Investors often divide Bond ratings into two groups: Bonds rated Baa3/BBB- or above are investment-grade. Bonds rated Ba1/BB+ and below are classified as high-yield. Bond ratings are based on future predictions (Apkarian, 2018). The leading rating agencies’ bond ratings aren’t flawless, but they are a decent place to start. Investors wishing to own individual bonds should keep an eye on bond rating changes.
Rating the health of the company’s balance sheet, the firm’s ability to repay debts borrowed comfortably, the state of the firm’s operations, and current corporate circumstances are all factors that rating agencies assess while bond rating (Brigham & Daves, 2015). Many firms have different ways of acquiring funds. One of the common ways in which firms develop funds is through bonds. The corporation repays the investor when the bond reaches its maturity date.
Amazon is one of the corporations with outstanding bonds. The company holds Treasury bonds. The company also has exceptional corporate and agency bonds with various ratings. Companies like Amazon issue different bonds to acquire targeted funds and take advantage of the simple procedure involved compared to obtaining loans from banks that are expensive and cumbersome (Fadah et al. 2020).
References
Apkarian, J. (2018). Opposition to shareholder value: bond rating agencies and conflicting logics in corporate finance. Socio-Economic Review, 16(1), 85-112. https://academic.oup.com/ser/article-abstract/16/1/85/4596662
Fadah, I., Ayuningtyas, A., Puspitasari, N., & Yuswanto, I. B. (2020, May). Analysis of financial and non-financial factors affecting bond ratings. In IOP Conference Series: Earth and Environmental Science (Vol. 485, No. 1, p. 012019). IOP Publishing. https://iopscience.iop.org/article/10.1088/1755-1315/485/1/012019/meta
Brigham, E. F., & Daves, P. R. (2015). Intermediate Financial Management (12th Edition).
Cengage Learning US. https://slingshot.vitalsource.com/books/9781305480698
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