The first draft of corporate formula is ready. It is:

r = 10/{[1+(debt/annual sales)] + [1-10*(accumulated profit for last 5 years/sales for last 5 years)] + [1 + (10/years since established)] + [1+3*(accumulated of last 5 years inflation of the country where established)] + [1+( expenses/sales)] + [1+ (number of years in last 5 years with no dividend paid/5] + [world's GDP per capita/country's GDP per capita of a country where the company is established] + [1+political factor*2] + [1+type of business] + [Other unique factors]}

r - rating

annual sales, profit, country inflation, expenses, debt, GDP, GDP per capita - nominal statistic values
 
inflation - measured as part of 1. I.e. 3% inflation will mean 0,03 in formula

type of business - a coefficient based on Boston Consulting Group Matrix, with some modifications:

0 - for any company with very large cash reserves (Apple, Microsoft, etc.)
0,25 - for a "cow"
0,50 - for a "star"
0,75 - for a "question mark"
1 - for a "dog"

political factor (the same as with counry ratings, but in formula is multiplied by 2 due to the higher importance for the busuness, being dpendent by the government power):

0 - stable democracy with high educated voters and high living standart
0,1 - democracy for at least 50 years
0,2 - young democracy (less than 50 years), high corrupted democracy
0,3 - authoritarian rule, oligarchy
0,4 - totalitarian state, dictatorship
0,5 - military aggressive regime

Other unique factors - this is so called "private opinion" on company. It is a number between 1 and 2 and is given as a private evaluation of the one that calculates the rating. This parameter is needed as a final adjustment that can add every factor, that is not present in the formula, but is important for an individual company. There are such unique factors, that can't be added to the formula, because are rare. Every such evaluation must be argued.

Calculation of the rating:

The formula produces a number between 0 and 1. In a very rare situation it can produce a number higher that 1. Multiplied by 100, it will produce a percentage value.

The calculated number corresponds to a rating, jusl like in country-ratings...

Dobri
Aug 7th 2012

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In a mid-term future a corporate rating formula will be issued. It is clear that after the "triple A" of Lehman Brothers, Enron and subprime mortgages, the system of popular ratings is not reliable. A clear and independent system is needed - a strict formula that cannot be manipulated. So now I am working on it.
As a preview I can point that strong influence in it will have dividend payment. My opinion is that companies based on capital gains are more risky to balloon-disease. It is not serious to have $100 billion company, that has no even $10 billion in revenue, nor any profit. The real business are the sales and profits of companies. The increasing stock-prices due to fantastic perspectives are more a dream, than a business.
Other important component in formula will have the history of the company. A 100 years company with no defaults is more reliable than a 1-year garage start-up.
There will be also a segmentation of businesses. For instance, it is clear that energy or resource companies are more reliable than high tech companies. Yes, we all see Microsoft, Cisco or Apple. But we forget thousands of other high tech companies, that failed. The business it not only success. We must look at the failures too. So in high tech we have enough failures to make us think once more.
The fourth idea is about the stability of stock prices. A company with mid-price of $20 per share and 18 to 22 amplitude is more reliable than a comany with mid price of $20 and 10 to 30 amplitude. The second one is more vulnerable to market quakes.
These and some other similar ideas are in thinking phase now. But soon - a new formula will be born...
Generally - with corporations or with governments, the purpose of any credit rating is the same - it measures the ability of the debtor to repay its loans. Nothing more, nothing less. It is not a system of rewarding one company or punishing another. There must not be any emotion here. It's just a question of truth...

Dobri
Feb 14th 2012