What is Assets Under Management (AUM)? Assets under management (AUM), also called funds under management, is the total market value of the securities a financial institution (such as a bank, mutual fund, or hedge fund) owns or manages on behalf of its clients. Example of AUM for a Mutual Fund Let’s take the example of a…
What is a Non-Interest Expense? A non-interest expense is an operating expense incurred by a bank, and it is separate from the interest expense on customer deposits. It includes the bank’s operating and overhead expenses, such as employee salaries and bonuses, unemployment tax, operating and maintenance of facilities, equipment rental, marketing, insurance, furniture, and amortization…
What is Burn Rate? Burn Rate refers to the rate at which a company depletes its cash pool in a loss-generating scenario. It is a common metric of performance and valuation for companies, including start-ups. A start-up is often unable to generate a positive net income in its early stages as it is focused on…
Protecting Excel Data Protecting Excel data in financial modeling is critical. Users prefer to secure and protect cells that they will not tweak or change while leaving certain cells free to adjust assumptions and inputs. By doing so, users are protected from potential inconsistencies and mistakes that may result from typos and unwanted changes in…
What is the Payback Period? The Payback Period shows how long it takes for a business to recoup an investment. This type of analysis allows firms to compare alternative investment opportunities and decide on a project that returns its investment in the shortest time if that criteria is important to them. For example, a firm…
Data Sources in Financial Modeling Collecting and using the right data sources in financial modeling is crucial to the success of financial analysis. Financial modeling requires gathering and analyzing lots of information; the collection of data is a crucial step in creating a financial model. There is a wide range of data that must be used…
What is a Consolidation Model? A Consolidation Model is constructed by combining the financial results of multiple business units into one single model. Typically, the first worksheet of the model is a summary or consolidation view that shows the highest-level figures (monthly and yearly revenues, profits, costs, productivity rate, etc.) in the form of tables,…
What is an Earnout? An earnout is a risk allocation mechanism for the acquirer wherein the purchase price is contingent on the “future performance” of the target company. The acquirer pays a majority of the purchase price upfront, at the time of closing the deal, and the remainder is contingent on the performance of the…
What is the Financial Industry Regulatory Authority (FINRA)? The Financial Industry Regulatory Authority (or FINRA) is a non-governmental organization that acts as a self-regulatory organization for securities firms that operate in the United States. The goal of FINRA is to protect investors by safeguarding the integrity of the financial markets. Foundation of the Financial Industry Regulatory…
What is an Adhesion Contract? An adhesion contract, also known as a “boilerplate” contract or a “standard form” contract, is an agreement between parties whereby one party (the one with a higher bargaining power) sets out all or most of the terms of the contract. The other party (the one with a weaker bargaining power)…
