Importance of Credit Ratings in Equity Research

In this post with an example I’ll try to explain the Importance of Credit Ratings in Equity Research.

Before we get into the main topic, if you don’t know what is Credit Ratings of a company, please go through this and get back.

Now that you have an idea about credit ratings, lets take an example of a company Vimta Labs.

Vimta Labs Fundamentals

RatioValue
Market Price as on 19th July 2019153.35
52 Week High/Low342.90/150.25.10
Price to Earning13.30
Price to Book1.96
PEG Ratio0.97
Debt to Equity0.15
Change in promoter holding in last one year0.00%

The financials look decent to enter into this stock at this price of Rs:153. However, CRISIL has recently updated Vimita Labs outlook as ‘suspended’ for both long term and short term credit rating. This being the case, it is better to avoid such companies, as this might be a signal of possible credit distress.

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