Trefis identifies and classifies 6 key credit ratios to arrive at a company's credit rating as under:
A] Primary Ratio: Debt-to-EBITDA Leverage Ratio
B] Secondary Ratios: 5 ratios as follows - (a) FFO-to-Debt Ratio; (b) CFO-to-Debt Ratio; (c) FOCF-to-Debt Ratio; (d) EBIT-to-Interest Coverage Ratio; and (e) Cash Ratio
Trefis assigns equal weight of 50% each to the weighted average primary ratio and weighted average secondary ratio.
Also, within the secondary ratio sphere, we assign equal weights of 20% to each of the five secondary ratios.
Each ratio is calculated, projected and analysed for a period of 5 years, which includes 2 previous full financial years, the current financial year and 2 financial years immediately following the current one. Weights for each ratio in these five financials years are: 15%, 15%, 30%, 20% and 20%, respectively.
The final credit rating of the company is based on the weighted average credit ratio arrived at (weighted average primary ratio x 50% + weighted average secondary ratio x 50%) and the ratings cut-off as available in the table above.