rating

noun rat·ing \ ˈrā-tiŋ \
Updated on: 23 Nov 2017

Definition of rating

1 : a classification according to grade; specifically : a military or naval specialist classification
2 chiefly British : a naval enlisted man
3 a : relative estimate or evaluation : standing
  • the school has a good academic rating
b : an estimate of an individual's or business's credit and responsibility
c : an estimate of the percentage of the public listening to or viewing a particular radio or television program
4 : a stated operating limit of a machine expressible in power units (such as kilowatts of a direct-current generator) or in characteristics (such as voltage)

Examples of rating in a Sentence

  1. The school has an above-average academic rating.

  2. The article compares the fuel-economy ratings of various cars.

Recent Examples of rating from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'rating.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of rating

1702


Financial Definition of RATING

rating

What It Is

In personal finance, the term rating commonly refers to a credit rating score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is.

In corporate finance, rating usually refers to a "grade" assigned to a bond, bond issuer, insurance company or other entity or security to indicate its riskiness. Securities analysts often issue ratings on stocks; these ratings are usually "Buy," "Sell" or "Hold."

How It Works

Bond rating agencies like Moody's and Standard & Poor's (S&P) provide a service to investors by grading fixed income securities based on current research. The rating system indicates the likelihood that the issuer will default either on interest or capital payments.

For S&P,  the ratings vary from AAA (the most secure) to C.
For Moody's, the ratings go from Aaa to D, which means the issuer is already in default.

Only bonds with a rating of BBB or better are considered "investment grade." BBB bonds are considered to be suitable for investment by institutions. Anything below the triple-B rating is considered to be junk, or below investment grade. Bond ratings are periodically revised based on recent data.

Treasury bonds are not rated because they are backed by the "full faith and credit" of the United States government. They are considered to be the safest of investments because the government has the power to levy taxes in order to pay its debts.

Why It Matters

Ratings have huge influence on the price and demand for certain securities, particularly bonds: The lower the rating, the riskier the investment and the less the investment is worth. Low ratings often lead to less trading activity and thus liquidity problems. This is why downgrades (or rumors of downgrades) in an issuer's credit rating can have a significant impact on its securities and on the market or industry.

Bonds are not the only securities affected by credit ratings, however. Preferred stock prices can move sharply when the issuer's credit rating changes (as this is an indicator of the issuer's ability to meet preferred dividend obligations). Securities that are convertible into a company's debt are also affected by credit ratings, especially if the convertible security is trading near or above the point at which the holder may convert the security to debt.

Low ratings are not always bad. They simply mean there is more risk associated with an investment and thus more potential for higher returns. In fact, many income investors actively enhance their returns by dividing securities into sectors based on certain characteristics such as credit rating, yield, coupon, maturity, etc., and then finding those sectors that will perform most favorably for the investor under certain market conditions.

Grouping securities by rating is common because investors are trying to rank investments, buy those positioned to improve and sell those expected to decline. An issuer doesn't need to actually default or lose money for an investor to lose money, however -- remember that the simple threat of default or decline can lower the price of the security. This threat could be sensitivity to adverse business conditions, rumors of a ratings downgrade or inaccuracy of ratings agency opinions.



RATING Defined for English Language Learners

rating

noun

Definition of rating for English Language Learners

  • : a measurement of how good, difficult, efficient, etc., something or someone is

  • the ratings : numbers that show how many people watch or listen to a particular television or radio program

  • : a symbol that is officially given to a movie, video game, etc., to tell people what audience it is appropriate for


RATING Defined for Kids

rating

noun rat·ing \ ˈrā-tiŋ \

Definition of rating for Students

: a position within a grading system
  • credit rating


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