What does a credit rating indicate?

A credit rating serves as an assessment of the creditworthiness of a borrower or a specific security. It reflects the likelihood that the borrower will be able to meet their financial obligations, which includes repaying loans or honoring the terms associated with debt securities. This rating is crucial for investors and lending institutions as it provides insight into the risk associated with an investment or loan. A higher credit rating indicates a lower risk of default, making it more attractive to potential investors or lenders.

In contrast, the other options do not directly pertain to credit ratings. While the value of a company's assets is an important factor in evaluating its overall financial health, it does not influence the company's credit rating directly. Similarly, profitability is an indicator of a company's earnings capability but again does not specifically measure creditworthiness. Lastly, market demand is related to how much investors are willing to pay for a security in the market but does not reflect the underlying credit risk associated with that security. Thus, the definition of a credit rating is best captured by its role in evaluating a borrower's or security’s creditworthiness.