Ratio Scoring: An Application to Ratios Specified by Standard & Poor’s to Be Key Input to Determining Credit Ratings

Journal of Applied Finance, Fall/Winter 2011, Volume 21, Issue 2, pp. 58-72

Posted: 8 Aug 2012

See all articles by T. Shawn Strother

T. Shawn Strother

University of Nebraska-Lincoln

Samuel L. Tibbs

American University of Sharjah - School of Business and Management

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Date Written: 2011

Abstract

We create a simple method to score ratios based on relative performance. As an example, we apply the technique to ratios identified by Standard & Poor’s (S&P’s) as key inputs to determining credit ratings. Our results show that relative scoring produces information not captured by typical ratio analysis employed to set credit ratings. In the case of Standard & Poor’s credit ratings, our ratio scoring technique predicts future rating changes better than the underlying raw ratios.

Keywords: Ratio, Relative Performance, Standard & Poor's, Credit Rating

Suggested Citation

Strother, Timothy Shawn and Tibbs, Samuel L., Ratio Scoring: An Application to Ratios Specified by Standard & Poor’s to Be Key Input to Determining Credit Ratings (2011). Journal of Applied Finance, Fall/Winter 2011, Volume 21, Issue 2, pp. 58-72, Available at SSRN: https://ssrn.com/abstract=2126253

Timothy Shawn Strother (Contact Author)

University of Nebraska-Lincoln ( email )

Lincoln, NE 68588-0490
United States

HOME PAGE: http://www.unl.edu

Samuel L. Tibbs

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates
971 06 515 4169 (Phone)

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