Finance and Credit

Incorporation of rating parameters into the perpetuity range of the BrusovFilatovaOrekhova modern theory of capital structure

Vol. 23, Iss. 40, OCTOBER 2017

Received: 4 August 2017

Received in revised form: 28 August 2017

Accepted: 21 September 2017

Available online: 27 October 2017

Subject Heading: THEORY OF FINANCE

JEL Classification: G24, G32

Pages: 23782397

Brusov P.N. Financial University under Government of Russian Federation, Moscow, Russian Federation

Filatova T.V. Financial University under Government of Russian Federation, Moscow, Russian Federation

Orekhova N.P. Southern Federal University, Rostov-on-Don, Russian Federation

Kulik V.L. Financial University under Government of Russian Federation, Moscow, Russian Federation

Importance The research focuses on the existing systems of rating, respective methodologies and weaknesses of these methods.
Objectives We modify the methodology embedded into the existing rating systems and devise a brand new approach based on the appropriate application to discounted cash flows, discount of rating parameters, correct assessment of discount rates in line with financial ratios.
Methods The research deals with the perpetuity range of the BrusovFilatovaOrekhova modern theory of capital cost and capital structure. We also rely upon the modified theory for rating purposes and ranking coefficients.
Results We modify the methodology of the existing rating systems and devise an absolutely new approach to it.
Conclusions and Relevance Modifying the rating methodology, we make our own assessments more accurate and unbiased. Using the toolkit of the advanced theories, we reach new horizons of the rating practice, since it enables the rating segment to predominantly use quantitative methods. The proposed approach should be applied by all rating agencies in assessing the creditworthiness of issuers.

Keywords: rating, rating methodology, BrusovFilatovaOrekhova theory, coverage ratio, leverage ratio


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