What is a Solvency Ratio? A solvency ratio is a performance metric that helps us examine a company’s financial health. In particular, it enables us to determine whether the company can meet its financial obligations in the long term. The metric is very useful to lenders, potential investors, suppliers, and any other entity that would…
What is the Sortino Ratio? The Sortino ratio is a risk-adjustment metric used to determine the additional return for each unit of downside risk. It is computed by first finding the difference between an investment’s average return rate and the risk-free rate. The result is then divided by the standard deviation of negative returns. Ideally,…
What is Socially Responsible Investment (SRI)? Socially responsible investment, or SRI, is a strategy that considers not only the financial returns from an investment but also its impact on environmental, ethical or social change. Identifying which ventures to put their hard-earned money into can be difficult for potential investors. It is why such investors consider…
What is a Social Welfare System? A social welfare system is a network of programs created to assist a country’s citizens at various stages of their lives. The system usually arises from the efforts of a government or organizations to provide social welfare. It’s an ongoing process meant to care for the specific needs of…
What is Financial Inclusion? Financial inclusion refers to the provision of equally available and affordable access to financial services for everyone, regardless of their level of income. It applies to providing services to both individuals and businesses. Understanding Financial Inclusion Financial inclusion is not only important for people in undeveloped countries. It’s estimated that as…
What is the Fisher Effect? The Fisher Effect refers to the relationship between nominal interest rates, real interest rates, and inflation expectations. The relationship was first described by American economist Irving Fisher in 1930. The relationship is described by the following equation: (1+i) = (1+r) * (1+π) Where: i = Nominal Interest Rate r =…
What is Financial Health? Financial health is a basic measure of the soundness of an individual’s finances – essentially, it’s about what kind of financial shape you’re in overall. You may also view it as a reflection of your level of financial security. Since your financial health encompasses all the various aspects of…
What is a Sovereign Wealth Fund (SWF)? A sovereign wealth fund (SWF), also known as a social wealth fund, is the surplus money that a country accrues over time. The government-backed pool of funds is mostly funded from a country’s foreign exchange reserves. Other sources of funds for an SWF account include: Bank reserves Surplus…
What is Enterprise Value-to-Sales (EV/Sales)? Enterprise value-to-sales (EV/Sales) is a financial ratio that measures a company’s total value (in enterprise value terms) to its total sales revenue. It is further simplified as the EV per a dollar of sales. It means that the higher the ratio, the more “expensive” or valuable the company is and…
What is Homoskedastic? Homoskedastic is the situation in a regression model in which the residual term for each observation is constant for all observations. It essentially means that as the value of the dependent variable changes, the error term does not vary much for each observation. However, when the residual term’s size differs across an…
