What is Neoclassical Economics? Neoclassical economics is a broad approach that attempts to explain the production, pricing, consumption of goods and services, and income distribution through supply and demand. It integrates the cost-of-production theory from classical economics with the concept of utility maximization and marginalism. Neoclassical economics includes the work of Stanley Jevons, Maria Edgeworth,…
What is the Nominal Interest Rate? The nominal interest rate refers to the rate of interest before adjusting for inflation. It also refers to the rate specified in the loan contract without adjusting for compounding. The nominal interest rate is in contrast to the real interest rate regarding the inflation adjustment and effective interest rate…
What are Appraisal Costs? Appraisal costs are expenses related to quality control that a company incurs to ensure its products and services meet the standards of its customers, the company, and regulatory requirements. Companies are willing to pay these fees for tests and inspections to prevent defective goods and services from reaching their customers. They…
What is a Modular Model? A modular model splits out the core statements into smaller schedules and conducts the calculations outside of the core statements. This allows the focus to remain on the core statements, which can now be kept cleaner. Supporting schedules do all the calculations and dirty work. In a horizontal model, these…
What is Modeloff? Modeloff is a global financial modeling competition that requires contestants to use Excel to solve financial questions and case studies. Though it is referred to as a “financial modeling” competition, it doesn’t require participants to build a complete valuation model of a business; it mostly focuses on independent questions that require mini…
Why Stress Test a Financial Model? The last key step in preparing a financial model is stress testing it. The ability to stress test a financial model and find any flaws within it is a useful skill in improving the quality of a financial model. Stress testing also ensures no errors will occur in the…
What is Days Sales in Inventory (DSI)? Days Sales in Inventory (DSI), sometimes known as inventory days or days in inventory, is a measurement of the average number of days or time required for a business to convert its inventory into sales. In addition, goods that are considered a “work in progress” (WIP) are included…
What are Risk Rating Models? Risk rating models are tools used to assess the probability of default. The concept of a risk rating model is deeply interconnected with the concept of default risk and a key tool in areas such as risk management, underwriting, capital allocation, and portfolio management. Risk rating models use several factors…
What is a Nostro Account? A Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held. The term “nostro” is a Latin word that means “ours,” and it is used to facilitate foreign exchange and international trade transactions involving foreign…
