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…
What are Non-Monetary Assets? Non-monetary assets are assets whose value frequently changes in response to changes in economic and market conditions. The assets appear on the balance sheet under intangible and non-current assets. Common examples of non-monetary assets include goodwill, copyrights, inventory, and plant, property and equipment (PP&E). No established market exists for non-financial assets,…
What is a Non-Performing Loan (NPL)? A non-performing loan (NPL) is a loan in which the borrower is in default and has not paid the monthly principal and interest repayments for a specified period. Non-performing loans occur when borrowers run out of money to make repayments or get into situations that make it difficult for…
What is Natural Unemployment? Natural unemployment, or natural rate of unemployment, is the unemployment rate that persists in a well-functioning, healthy economy that is considered to be at “full employment.” It is a hypothetical rate of unemployment and suggests that there is never zero unemployment in an economy. Natural unemployment refers to the unemployment that…
