What is Volatility Arbitrage? Volatility arbitrage refers to a type of statistical arbitrage strategy that is implemented in options trading. It generates profits from the difference between the implied volatility of options and the forecasted volatility of underlying assets. The values of options are impacted by the volatility of their underlying assets. Higher volatility of…
What is Accrued Interest? Accrued interest refers to interest generated on an outstanding debt during a period of time, but the payment has not yet been made or received by the borrower or lender. Accrual Interest in Accounting Under accrual accounting, accrued interest is the amount of interest from a financial obligation that has been…
What is an Accrued Expense? Accrued expense is a concept in accrual accounting that refers to expenses that are recognized when incurred but not yet paid. In some transactions, cash is not paid or earned until the revenues or expenses are incurred. For example, a company pays its February utility bill in March, or delivers…
What is a Neckline? Neckline refers to a trendline drawn below a head and shoulders pattern that is used in technical analysis that signals buying opportunities to investors. It is drawn along the support and resistance points of various consolidation and reversal patterns. It connects the low points of the head and shoulders pattern, following…
What is Financial Forecasting? Financial forecasting is the process of estimating or predicting how a business will perform in the future. The most common type of financial forecast is an income statement; however, in a complete financial model, all three financial statements are forecasted. In this guide on how to build a financial forecast, we…
What is a Real Estate Development Model? A real estate development model usually consists of two sections: the Deal Summary and the Cash Flow Model. Within the Deal Summary, all important assumptions – including the schedule (which lays out the timeline), property stats, development costs, financing assumptions, and sales assumptions – are listed and used…
What are the Top Forecasting Methods? There are four main types of forecasting methods that financial analysts use to predict future revenues, expenses, and capital costs for a business. While there is a wide range of frequently used quantitative budget forecasting tools, in this article, we focus on four main methods: (1) straight-line, (2) moving…
What is an NOL/Tax Loss Carryforward? A net operating loss (NOL) or tax loss carryforward is a tax provision that allows firms to carry forward losses from prior years to offset future profits, and, therefore, lower future income taxes. The way a tax loss carryforward works is that a schedule is generated to track all…
What is a Depreciation Schedule? A depreciation schedule is required in financial modeling to forecast the value of a company’s fixed assets (balance sheet), depreciation expense (income statement), and capital expenditures (cash flow statement). Depreciation occurs as an economic asset is used up. Economic assets are different types of property, plant, and equipment (PP&E). As…
What is an LBO Model? An LBO model is a financial tool typically built in Excel to evaluate a leveraged buyout (LBO) transaction, which is the acquisition of a company that is funded using a significant amount of debt. Both the assets of the company being acquired and those of the acquiring company serve as…
