Digest Finance
 

Incorporation of Rating Parameters into the Perpetuity Limit of the BrusovFilatovaOrekhova Modern Theory of Capital Structure

Vol. 22, Iss. 4, DECEMBER 2017

PDF  Article PDF Version

Received: 4 August 2017

Received in revised form: 28 August 2017

Accepted: 21 September 2017

Available online: 19 December 2017

Subject Heading: FINANCIAL THEORY

JEL Classification: G24, G32

Pages: 468482

https://doi.org/10.24891/df.22.4.468

Brusov P.N. Financial University under Government of Russian Federation, Moscow, Russian Federation
pnb1983@yahoo.com

Filatova T.V. Financial University under Government of Russian Federation, Moscow, Russian Federation
tvfilatova@fa.ru

Orekhova N.P. Southern Federal University, Rostov-on-Don, Russian Federation
fet_mir@bk.ru

Kulik V.L. Financial University under Government of Russian Federation, Moscow, Russian Federation
venya.kulik@mail.ru

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 of discounting to cash flows, use of rating ratios while discounting, correct assessment of discount rates in line with financial ratios.
Methods The research deals with the perpetuity limit of the BrusovFilatovaOrekhova modern theory of capital cost and capital structure. We also rely upon the modified theory for rating purposes and ratios.
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 developed 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, BFO theory, coverage ratio, leverage ratio

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