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Improvement of Rating Methodology
Importance The article focuses on rating methodologies, their drawbacks and improvement methods.
Objectives The research generalizes the new approach to the rating methodology adjusting it for the Brusov – Filatova – Orekhova modern theory of capital cost and capital structure in relation to corporations of any age.
Methods The research is based on the Brusov – Filatova – Orekhova modern theory of capital cost and capital structure (BFO theory).
Results The article analyzes methodological and systemic drawbacks of the existing credit ratings of non-financial issuers. We incorporate financial ratios used for rating into the general case of the BFO theory. The article also examines how the Weighted Average Cost of Capital depends on coverage and leverage ratios.
Conclusions and Relevance The proposed approach will make ratings more accurate and unbiased. The findings may prove useful to international and Russian rating agencies to evaluate the solvency of issuers.
Ключевые слова: rating, rating methodology, Brusov–Filatova–Orekhova theory, BFO theory, coverage ratio, leverage ratio
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