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 Brusov–Filatova–Orekhova 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.
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