Ratings of Investment Projects of Arbitrary Duration with a Uniform Debt Repayment: A New Approach

Peter Brusov, Tatiana Filatova and Natali Orekhova
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Tatiana Filatova: Financial University under the Government of Russian Federation
Natali Orekhova: Financial University under the Government of Russian Federation

Chapter Chapter 32 in The Brusov–Filatova–Orekhova Theory of Capital Structure, 2023, pp 749-764 from Springer

Abstract: Abstract Along with the rating of non-financial issuers, considered in previous Chaps. ( 28 , 29 , and 30 ), the rating of investment projects plays an important role in the modern economy and finance. It allows ranking and selection of the most effective investment projects, which is especially important for attracting both foreign and domestic investments. This chapter discusses the rating of investment projects of arbitrary duration with a uniform repayment of debt, investment model for which is described in Chap. 18 . The methodology for rating investment projects has been modified. A fundamentally new approach to the project rating methodology has been developed, the key factors of which are: (1) adequate application of discounting when discounting the financial flows, which is practically not used in the existing project rating methodologies; (2) incorporation of financial ratios into modern investment models created by the authors; (3) use of rating parameters upon discounting; (4) the determination of the correct discount rate, taking into account financial ratios. We use modern investment model created by the authors (see Chap. 18 ), the modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (BFO) theory, its modification for rating needs, and rating coefficients. Various theories of capital cost and capital structure are described in Chaps. 4 , 5 , and 6 . The developed approach should be applied by rating agencies, both international and national ones, when rating investment projects. The modification of the methodology of the existing project rating systems will improve the accuracy of ratings of investment projects and make them more objective. The use of powerful tools of well-developed theories opens up new opportunities for the rating industry, which gets the opportunity to switch from using primarily qualitative methods for assessing the effectiveness of investment projects to using mainly quantitative methods for evaluating them.

Keywords: Brusov–Filatova–Orekhova (BFO) theory; Investment projects of arbitrary durations; Rating methodologies; Financial “ratios”; Uniform debt repayment (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27929-4_32

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DOI: 10.1007/978-3-031-27929-4_32

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