ALM First’s Profitability Calculator is an interactive tool to model product profitability and return on capital.
Profitability is calculated in a risk-adjusted framework, revealing the adequacy of the risk/return tradeoff of a product. Risk-adjusting gives insight into the sources of return and seeks to express how much risk is present in producing a return.
Benefits of ALM First Profitability Calculator
Select your product input. Select your product structure. Input your desired coupon. It’s that simple. Profitability Outputs are calculated with estimated returns based on up-to-date market rates and recommendations are provided for your specific assets.
Visualize profitability on the go: The visualizer provides analytics on-demand and offline from anywhere.
Market rates updated regularly: Market rate data is frequently updated with the most up-to-date market environment and risk estimates.
Evaluate in a risk-adjusted framework: ALM’s approach to visualizing components of profitability provides invaluable insight to maximize member/customer value and promote effective product management through the evaluation of the risk/return tradeoff.
An economic return indicates profitability of a financial instrument in a risk-adjusted framework. This tool is designed for two main purposes: to evaluate appropriate pricing given specific risk considerations and compare relative value across multiple assets with varying risk profiles.
Many pricing methods miss a critical component: current and reliable risk-based costs. The Profitability Calculator employs risk analytics produced weekly using a stochastic cash flow model which, when combined with your internal cost structure, creates a dependable framework for risk-adjusted pricing and evaluation of profitability.
Tracking internal costs such as product-specific servicing costs, credit costs by tier, and material upfront costs is highly recommended to improve the efficacy of the tool. The more granular the cost assumptions, the more precise the results.
The lifetime projected loss (charge-off net of recovery) stated as an average annual percentage. Typically historical data is gathered on both the product and the risk tier to project the cost of the credit risk.
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