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Class notes

Chartered Financial Analyst

  • Course
  • CFA - Chartered Financial Analyst
  • Institution
  • CFA - Chartered Financial Analyst

The Chartered Financial Analyst (CFA) designation, offered by the CFA Institute, is a prestigious credential for investment professionals. It signifies expertise in investment analysis, portfolio management, and ethical standards. The program comprises three rigorous exams, covering topics such as ...

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  • May 28, 2024
  • 30
  • 2023/2024
  • Class notes
  • Moana joan
  • Unknown
  • CFA - Chartered Financial Analyst
  • CFA - Chartered Financial Analyst

Available practice questions

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Financial Statement Analysis Framework

Answer: provides an overview of the methodology used by analysts to consistently analyze financial statements 1. articulate the purpose and context of analysis 2. collecting data 3. process the data 4. analyzing and interpreting the processed data 5. develop/communicate conclusions and recommendations 6. follow up


Scope of Financial Statement Analysis

Answer: - analysis is based on financial statements is performed by equity investors interested in valuation, lenders interested in liquidity, suppliers interested in future business, and analysts working to recommend security purchases, mergers, credit and lending, debt ratings, and forecasting


Balance Sheet: Assets

Answer: Assets are items owned by a company that will benefit the company in the future found on balance sheet; include current and noncurrent required to be listed separately under IFRS typically shown on balance sheet at historical cost


Income Statement: Introduction

Answer: - reports revenues, expenses, and profit or loss for a company on a consolidated basis over a short period of time - revenues are matched with expenses incurred to earn the revenue, and the net result is a profit or a loss for the period - when the company reports on a consolidated basis, they include all companies they own in one income statement


Statement of Changes in Equity (1)

Answer: - reconciles the balance in equity from the beginning of a period to the end of a period - equity is composed of paid-in capital, retained earnings, other comprehensive income, and minority interests - statement of changes in equity reconciles the beginning equity balance with the period-ending equity balance by analyzing the changes in the four components of equity Beginning equity +/- increase/decrease in paid-in capital + net income (or minus net loss) - dividends paid +/- changes in other comprehensive income +/- changes in minority interest

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Income Statement Components and Format

Answer: - income statement components include net revenue minus COGS, SG&A expenses to make operating income - from this, interest expense, depreciation expense, and tax expense are deducted for net income - there are many other potential elements, including gains and losses from non-operating items - expenses can be grouped by nature or function, and the income statement can be single-step or multi-step in format


Basic EPS Calculation

Answer: - \"common\" = GAAP term, \"ordinary\" = IFRS term = (NI - P Dividends) / Weighted Average # of Shares Outstanding - the denominator of this is a time-weighted average and reflects the impact of share issuances, share repurchases, stock splits, and stock dividends


Simple vs. Complex Capital Structure

Answer: - in a complex capital structure, some debt is convertible to new common (or ordinary) shares - potential dilution of earnings is accounted for in diluted EPS, which is lower than basic EPS - a simple capital structure is one without convertible debt


Discontinued Operations

Answer: - must be separately stated on the income statement, allowing an analyst to disregard the impact on future financial performance


Non-Operating Items

Answer: Non-operating items will vary depending on whether the company is a financial service Non-operating items should be stated separately on the income statement Analysts who observe a significant amount of non-operating income in a company\'s reports should investigate further before making an investment decision

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Investing and Financing Activities

Answer: - investing activities impact long-term assets; financing activities include LT liabilities and equity - amount of cash received from the issuance of common stock = common stock + additional paid-in capital


Conversions of Cash Flows from the Indirect to the Direct Method

Answer: if an analyst wants to review trends in cash receipts and payments, but the operating activities were prepared using the indirect method, a three-step convergence can be done: 1) separate net income into total revenues and total expenses 2) remove all non-cash and non-operating items and separate the remaining items into relevant cash flow items 3) convert accrual amounts of revenues and expenses to cash receipts and payments by adjusting for increases/decreases in current assets and current liabiltiies


Evaluation of Sources and Uses of Cash

Answer: - higher CFO than NI is generally a good sign - operating cash flows: indicate whether a company can generate positive cash flows from what they are in business to do - investing cash flows: tell users whether funds are being spent or generated from capital assets or LT investments - financing cash flows: disclose sources or uses of cash from LT debt or from share transactions


Common-Size Cash Flow Statement

Answer: - each line item is expressed as either a percentage of total cash inflows/outflows or as a percentage of revenue - shows trends in cash flow instead of looking at total amounts


Cash Flow Ratios: Performance

Answer: CF to Revenue = CFO / Net Revenue Cash Return on Assets = CFO / Avg Total Assets Cash Return on Equity = CFO / Average SE Equity The higher, the better Cash to Income = CFO / OI Cash Flow per Share = (CFO - P Dividends ) / # Common Shares Outstanding * need to be careful with this ratio with IFRS vs. GAAP; if dividends are paid to common shareholders in CFO, they need to be added back

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