Which Financial Ratios Matter for Credit Ratings?

Credit rating agencies rely on a defined, recurring set of ratios spanning leverage, coverage, liquidity, and efficiency — not an exhaustive list of every ratio a finance textbook might cover.

The Core Categories

•      Leverage ratios — Debt-to-Equity, Net Debt/EBITDA, Debt/Tangible Net Worth

•      Coverage ratios — Interest Coverage Ratio, Debt Service Coverage Ratio (DSCR)

•      Profitability ratios — EBITDA Margin, PAT Margin, Return on Capital Employed (ROCE)

•      Liquidity ratios — Current Ratio, Quick Ratio, cash relative to near-term maturities

•      Efficiency ratios — Receivable Days, Inventory Days, Payable Days, and the Cash Conversion Cycle

Why This Specific Set

These ratios are used consistently because, together, they answer the questions a rating decision actually depends on: how much debt does the company carry, can it comfortably service that debt from operating earnings and cash flow, and does it have enough near-term liquidity to absorb an unexpected shock. Ratios outside this core set are used more selectively, depending on sector.

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Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.