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…
What is Vertical Equity? Vertical equity is a method of taxation wherein the personal income tax liability of an individual increases as their income increases. It is based on the principle that individuals with higher incomes and more assets must pay a higher income tax than others. The opposite of the vertical equity system is…
What is the Compound Growth Rate? The compound growth rate is a measure used specifically in business and investing contexts, that indicates the growth rate over multiple time periods. It is a measure of the constant growth of a data series. The biggest advantage of the compound growth rate is that the metric takes into…
What is the Dividend Growth Rate? The dividend growth rate (DGR) is the percentage growth rate of a company’s dividend achieved during a certain period of time. Frequently, the DGR is calculated on an annual basis. However, if necessary, it can also be calculated on a quarterly or monthly basis. The dividend growth rate is…
What is the Advertising to Sales Ratio? The advertising to sales ratio, also called the “A to S” for short, measures the effectiveness, or how successful, a company’s advertising strategies are. The advertising to sales ratio is used to determine how helpful the company’s resources and investments in advertising are in generating new sales. A…
What is Segment Margin? Segment margin is a profitability measure that assesses the profit or loss generated by a particular product line of a business, or a particular geographic location. The segment margin is mainly used to compare the profitability of different components of a company. The measure is extremely helpful for large companies with several…
What is the Cost Approach (Real Estate)? The cost approach of evaluating real estate properties is based on the assumption that the cost of a property should be equal to the cost of building a similar property from scratch. The cost of building a real estate property includes the value of the underlying land and…
