Rating Methodology: New Look and New Horizons

Authors

  • P.N. Brusov Department of Data Analysis, Decision Making, and Financial Technology, Financial University under the Government of Russian Federation, Moscow
  • T.V. Filatova Department of Corporate Finance and Corporate Governance, Financial University under the Government of Russian Federation, Moscow
  • N.P. Orekhova High Business School, Southern Federal University, Rostov-on-Don
  • V.L. Kulik Department of Management, Financial University under the Government of Russian Federation, Moscow

Keywords:

Rating, rating methodology, discounting of financial flows, coverage ratios, leverage ratios., Brusov-Filatova-Orekhova theory

Abstract

In the previous paper a new approach to rating methodology has been suggested. Key factors of a new approach were the following: 1) The adequate use of discounting of financial flows virtually not used in existing rating methodologies, 2) The incorporation of rating parameters (financial "ratios") into the perpetuity limit of modern theory of capital structure (Brusov-Filatova-Orekhova (BFO) theory): for companies with infinite lifetime.

In current paper further development of a new approach has been done. We have generalized it for the general case of modern theory of capital structure (Brusov-Filatova-Orekhova (BFO) theory): for companies of arbitrary age. A serious modification of BFO theory in order to use it in rating procedure has been required. It allows to apply obtained results for real economics, where all companies have finite lifetime, introduce a factor of time into theory, estimate the creditworthiness of companies of arbitrary age (or arbitrary lifetime), introduce discounting of the financial flows, using the correct discount rate etc. This allows use the powerful tools of BFO theory in the rating. All these create a new base for rating methodologies.

Downloads

Published

2018-03-09

How to Cite

Brusov, P., Filatova, T., Orekhova, N., & Kulik, V. (2018). Rating Methodology: New Look and New Horizons. Journal of Reviews on Global Economics, 7, 63–87. Retrieved from https://lifescienceglobal.com/pms/index.php/jrge/article/view/5277

Issue

Vol. 7 (2018)

Section

Special Issue - RECENT DEVELOPMENT OF CAPITAL STRUCTURE THEORY AND ITS APPLICATIONS

License

Policy for Journals/Articles with Open Access

Authors who publish with this journal agree to the following terms:

  • Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.

  • Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work

Policy for Journals / Manuscript with Paid Access

Authors who publish with this journal agree to the following terms:

  • Publisher retain copyright .

  • Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work .

Most read articles by the same author(s)