Media giant, Eastman Kodak Co. has recently received a downgrade on its credit rating to "B-" from "B". The downgrade was due to the company's high rate of cash consumption and concern that the cash balance will quickly be utilised. The outlooks are unfavorable for Eastman Kodak Co.
A credit rating defines the financial strength of borrowers and help inventor to determine the likelihood of repayment of bonds, etc. The credit rating is always used as a reference by the princaipal banker of the Company being rated.
The downgrading of credit rating has an direct impact on the Company's interest expense. The lower the rating, the higher the interest rate. As such, as the Company's auditors, we should always beware of the credit rating position of the Company we are auditing and form expecation and the interest expense of the Company.
A credit rating is also One OF THE TOOLS to evaluate the financial position (i.e. strength ) of the Company, and assist in forming going concern assumption for the Company.