What is the Degree of Financial Leverage? The degree of financial leverage is a financial ratio that measures the sensitivity in fluctuations of a company’s overall profitability to the volatility of its operating income caused by changes in its capital structure. The degree of financial leverage is one of the methods used to quantify a…
What is Foreign Exchange? Foreign exchange (Forex or FX) is the conversion of one currency into another at a specific rate known as the foreign exchange rate. The conversion rates for almost all currencies are constantly floating as they are driven by the market forces of supply and demand. The most traded currencies in the…
What is UpREIT vs DownREIT? The terms UpREIT vs DownREIT describe the differences that exist in the corporate structure of REITs. The concept of UpREIT, which stands for “Umbrella Partnership Real Estate Investment Trusts,” was introduced in 1992. An UpREIT allows long-established REITs to pool all the real estate properties that they own under a…
What is the Common Size Ratio? The Common Size Ratio refers to any number on a business’ financial statements that is expressed as a percentage of a base. Global Common Size Ratios Global common size ratios express a number on a business’ financial statement as a percentage of a denominating relevant number on the statement….
What is Synthetic Cash? Synthetic cash is a financial instrument that is created to function like other financial instruments, but certain characteristics of the simulated financial instrument are altered. The simulated instruments may not necessarily exist. Synthetic cash provides investors with patterns of cash flows that are specifically tailored to them. It also offers investors…
What is the Sales Comparison Approach (Real Estate)? The sales comparison approach depends on recent sales of similar real estate properties as the one being appraised. The property being compared should also fall in the same locality and current use. Understanding the Sales Comparison Approach While evaluating the value of the subject property, price adjustments…
What are Credit Risk Analysis Models? Financial institutions used credit risk analysis models to determine the probability of default of a potential borrower. The models provide information on the level of a borrower’s credit risk at any particular time. If the lender fails to detect the credit risk in advance, it exposes them to the…
What is Defeasance? Defeasance is a provision in business law that renders an agreement void under certain conditions. In the case of a debt agreement, defeasance provisions outline the needs that are to be fulfilled by the lender before the borrower is required to release their interest in a particular asset or property. Defeasance accounts…
