Is there a form of risk-adjusted return that investors can look at to compare between different P2P investments? (Something like Sharpe Ratio that kind)?
There is no formulated martrix for p2p investments yet. Maybe a kind soul can start to create one.
In my opinion, for platforms you can take compare:
1)annualised Rate of returns VS default rate
2) Rise of funds issued vs % of successful repayment - More loans issued = more loans Choice = more room for diversification
3) Credit scoring system (FACTSHEET)
As for individual loans, you can look at ,
1) Cash Flow
2) Leverage ratio/ cash ratio
3) Equities - Liabiliities Ratio (my personal preference) / Current ratio
4) trends of net profit/ gross profit
5) Simple interest Rate it is closely related to the platform credit scoring system. Technically, the higher the interest rate, the higher the risk.
P.S google the terminology or refer to Brian post
In my opinion, here are some statistics that you could use to compare across different borrowers:
Current Ratio measures how much Current Assets a company has relative to its Current Liabilities. It proxies as the liquidity position of a firm, and how much of its liabilities can be paid off if all current assets are liquidated.
Quick Ratio is a more conservative ratio than Current as it does not include Inventories, assuming that a company that is failing cannot sell all of its remaining inventory to clear its debt.
Leverage Ratio (Debt-to-Capital) measures how much debt the company is taking on, relative to the equity available in the company. The higher the ratio, the more risky the borrower is. However, this ratio should be taken with a pinch of salt because different industries have different standards for how much is the typical levered position. This should come in handy because most reports provided by the P2P platforms do highlight roughly which industry the borrower is from.
Not all platforms will provide this data but it is also important to differentiate fixed liabilities from current liabilities and see how the company is performing to match its current liabilities before they can even take on their fixed liabilities. Ideally, cashflows should be able to match current liabilities minimally. To get a better gauge, you can even calculate the Cash Conversion Cycle (= Days Inventory Outstanding + Days Receivable - Days Payable) to get a sense of how long the company takes to pay off their creditors.
Lastly, to measure how profitable investments in these companies are, we should take the rate of return into account together with the risk measures above to be able to get a comprehensive measure in totality. While I am not an experienced investor or very much knowledgeable in the realm of finance, I think we can build onto the concept of Sharpe ratio and have a rough sense of the "volatility/risk" of the investment through the use of the above ratios and then consider the returns in the numerator as per usual.
Hope this helps!
Interesting question! Would love to hear opinions too. But if you're mentioning P2P investments in t...
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BRDGE P2P Lending
15% on interest earned
$1000 per campaign
DEFAULT RATE (2020)
Funding Societies P2P Lending
CA Funding P2P Lending