What is a Breach of Covenant? A breach of covenant occurs when the issuer of a debt instrument violates a covenant, which is one of the terms and conditions the debtor committed to as part of the lending agreement. Depending on the type of covenant involved, there can be two types of breaches: Breach of…
What are Assurance Services? Assurance services are an independent examination of a company’s processes and controls. Assurance aims to reduce information risk by improving the quality or context of the information. Accounting professionals are qualified independent practitioners who can perform such services. Reducing risk allows intended users to refrain from making impaired decisions. Thus, assurance…
What is Aggregate Demand? Aggregate demand refers to the total demand for finished goods and services in an economy. Finished products are goods and services that have been fully manufactured – not including intermediate goods that are used as inputs in the production process. Aggregate demand also refers to the demand for the country’s gross…
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,…
