Rating: New Approach

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

The paper suggests a new approach to rating methodology, key factors of which are: 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 modern theory of capital structure (Brusov-Filatova-Orekhova (BFO) theory) (Brusov P, Filatova T, Orehova N, Eskindarov M, 2015) (for beginning into its perpetuity limit). This on the one hand allows use the powerful tools of this theory in the rating, and on the other hand it ensures the correct discount rates when discounting of financial flows. We discuss also the interplay between rating ratios and leverage level which can be quite important in rating. All these create a new base for rating methodologies.

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Published

2018-03-09

Issue

Section

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