CFA Level 1 Volume 3

Description

How to Use the CFA Program Curriculum Errata Designing Your Personal Study Program CFA Institute Learning Ecosystem (LES) Feedback Financial Statement Analysis Learning Module 1 Understanding Income Statements Introduction Components and Format of the Income Statement Revenue Recognition General Principles Accounting Standards for Revenue Recognition Expense Recognition: General Principles General Principles Issues in Expense Recognition: Doubtful Accounts, Warranties Doubtful Accounts Warranties Issues in Expense Recognition: Depreciation and Amortization Implications for Financial Analysts: Expense Recognition Non-Recurring Items and Non-Operating Items: Discontinued Operations and Unusual or Infrequent items Discontinued Operations Unusual or Infrequent Items Non-Recurring Items: Changes in Accounting Policy Non-Operating Items Earnings Per Share and Capital Structure and Basic EPS Simple versus Complex Capital Structure Basic EPS Diluted EPS: the If-Converted Method Diluted EPS When a Company Has Convertible Preferred Stock Outstanding Diluted EPS When a Company Has Convertible Debt Outstanding Diluted EPS: the Treasury Stock Method Other Issues with Diluted EPS and Changes in EPS Changes in EPS Common-Size Analysis of the Income Statement Common-Size Analysis of the Income Statement Income Statement Ratios Comprehensive Income Summary Practice Problems Solutions Learning Module 2 Understanding Balance Sheets Introduction and Components of the Balance Sheet Components and Format of the Balance Sheet Balance Sheet Components Current and Non-Current Classification Liquidity-Based Presentation Current Assets: Cash and Cash Equivalents, Marketable Securities and Trade Receivables Current Assets Current Assets: Inventories and Other Current Assets Other Current Assets Current liabilities Non-Current Assets: Property, Plant and Equipment and Investment Property Property, Plant, and Equipment Investment Property Non-Current Assets: Intangible Assets Identifiable Intangibles Non-Current Assets: Goodwill Non-Current Assets: Financial Assets Non-Current Assets: Deferred Tax Assets Non-Current Liabilities Long-term Financial Liabilities Deferred Tax Liabilities Components of Equity Components of Equity Statement of Changes in Equity Common Size Analysis of Balance Sheet Common-Size Analysis of the Balance Sheet Balance Sheet Ratios Summary Practice Problems Solutions Learning Module 3 Understanding Cash Flow Statements Introduction Classification Of Cash Flows and Non-Cash Activities Classification of Cash Flows and Non-Cash Activities Cash Flow Statement: Differences Between IFRS and US GAAP Cash Flow Statement: Direct and Indirect Methods for Reporting Cash Flow from Operating Activities Cash Flow Statement: Indirect Method Under IFRS Cash Flow Statement: Direct Method Under IFRS Cash Flow Statement: Direct Method Under US GAAP Cash Flow Statement: Indirect Method Under US GAAP Linkages of Cash Flow Statement with the Income Statement and Balance Sheet Linkages of the Cash Flow Statement with the Income Statement and Balance Sheet Preparing the Cash Flow Statement: The Direct Method for Operating Activities Operating Activities: Direct Method Preparing the Cash Flow Statement: Investing Activities Preparing the Cash Flow Statement: Financing Activities Long-Term Debt and Common Stock Dividends Preparing the Cash Flow Statement: Overall Statement of Cash Flows Under the Direct Method Preparing the Cash Flow Statement: Overall Statement of Cash Flows Under the Indirect Method Conversion of Cash Flows from the Indirect to Direct Method Cash Flow Statement Analysis: Evaluation of Sources and Uses of Cash Evaluation of the Sources and Uses of Cash Cash Flow Statement Analysis: Common Size Analysis Cash Flow Statement Analysis: Free Cash Flow to Firm and Free Cash Flow to Equity Cash Flow Statement Analysis: Cash Flow Ratios Summary Practice Problems Solutions Learning Module 4 Financial Analysis Techniques Introduction The Financial Analysis Process Analytical Tools and Techniques Financial Ratio Analysis The Universe of Ratios Value, Purposes, and Limitations of Ratio Analysis Sources of Ratios Common Size Balance Sheets and Income Statements Common-Size Analysis of the Balance Sheet Common-Size Analysis of the Income Statement Cross-Sectional, Trend Analysis & Relationships in Financial Statements Trend Analysis Relationships among Financial Statements The Use of Graphs and Regression Analysis Regression Analysis Common Ratio Categories & Interpretation and Context Interpretation and Context Activity Ratios Calculation of Activity Ratios Interpretation of Activity Ratios Liquidity Ratios Calculation of Liquidity Ratios Interpretation of Liquidity Ratios Solvency Ratios Calculation of Solvency Ratios Interpretation of Solvency Ratios Profitability Ratios Calculation of Profitability Ratios Interpretation of Profitability Ratios Integrated Financial Ratio Analysis The Overall Ratio Picture: Examples DuPont Analysis: The Decomposition of ROE Equity Analysis and Valuation Ratios Valuation Ratios Industry-Specific Financial Ratios Research on Financial Ratios in Credit and Equity Analysis Credit Analysis The Credit Rating Process Historical Research on Ratios in Credit Analysis Business and Geographic Segments Segment Reporting Requirements Segment Ratios Model Building and Forecasting Summary References Practice Problems Solutions Learning Module 5 Inventories Introduction Cost of inventories Inventory valuation methods Specific Identification First-In, First-Out (FIFO) Weighted Average Cost Last-In, First-Out (LIFO) Calculations of cost of sales, gross profit, and ending inventory Periodic versus perpetual inventory systems Comparison of inventory valuation methods The LIFO method and LIFO reserve LIFO Reserve LIFO liquidations Inventory method changes Inventory adjustments Evaluation of inventory management: Disclosures & ratios Presentation and Disclosure Inventory Ratios Illustrations of inventory analysis: Adjusting LIFO to FIFO Illustrations of inventory analysis: Impacts of writedowns Summary Practice Problems Solutions Learning Module 6 Long-Lived Assets Introduction Acquisition of Property, Plant and Equipment Acquisition of Long-Lived Assets Property, Plant, and Equipment Acquisition of Intangible Assets Intangible Assets Purchased in Situations Other Than Business Combinations Intangible Assets Developed Internally Intangible Assets Acquired in a Business Combination Capitalization versus Expensing: Impact on Financial Statements and Ratios Capitalisation of Interest Costs Capitalisation of Interest and Internal Development Costs Depreciation of Long-Lived Assets: Methods and Calculation Depreciation Methods and Calculation of Depreciation Expense Amortisation of Long-Lived Assets: Methods and Calculation The Revaluation Model Impairment of Assets Impairment of Property, Plant, and Equipment Impairment of Intangible Assets with a Finite Life Impairment of Intangibles with Indefinite Lives Impairment of Long-Lived Assets Held for Sale Reversals of Impairments of Long-Lived Assets Derecognition Sale of Long-Lived Assets Long-Lived Assets Disposed of Other Than by a Sale Presentation and Disclosure Requirements Using Disclosures in Analysis Investment Property Summary Practice Problems Solutions Learning Module 7 Income Taxes Introduction Differences Between Accounting Profit and Taxable Income Current and Deferred Tax Assets and Liabilities Deferred Tax Assets and Liabilities Determining the Tax Base of Assets and Liabilities Determining the Tax Base of an Asset Determining the Tax Base of a Liability Changes in Income Tax Rates Temporary and Permanent Differences Between Taxable and Accounting Profit Taxable Temporary Differences Deductible Temporary Differences Examples of Taxable and Deductible Temporary Differences Exceptions to the Usual Rules for Temporary Differences Business Combinations and Deferred Taxes Investments in Subsidiaries, Branches, Associates and Interests in Joint Ventures Unused Tax Losses and Tax Credits Recognition and Measurement of Current and Deferred Tax Recognition of a Valuation Allowance Recognition of Current and Deferred Tax Charged Directly to Equity Presentation and Disclosure Comparison of IFRS and US GAAP Summary Practice Problems Solutions Learning Module 8 Non-Current (Long-Term) Liabilities Introduction Bonds Payable & Accounting for Bond Issuance Accounting for Bond Issuance Accounting for Bond Amortisation, Interest Expense, and Interest Payments Accounting for Bonds at Fair Value Derecognition of Debt Debt Covenants Presentation and Disclosure of Long-Term Debt Leases Examples of Leases Advantages of Leasing Lease Classification as Finance or Operating Financial Reporting of Leases Lessee Accounting—IFRS Lessee Accounting—US GAAP Lessor Accounting Introduction to Pensions and Other Post-Employment Benefits Evaluating Solvency: Leverage and Coverage Ratios Summary Practice Problems Solutions Learning Module 9 Financial Reporting Quality Introduction & Conceptual Overview Conceptual Overview GAAP, Decision Useful Financial Reporting GAAP, Decision-Useful, but Sustainable? Biased Accounting Choices Within GAAP, but “Earnings Management” Departures from GAAP Differentiate between Conservative and Aggressive Accounting Conservatism in Accounting Standards Bias in the Application of Accounting Standards Context for Assessing Financial Reporting Quality Motivations Conditions Conducive to Issuing Low-Quality Financial Reports Mechanisms That Discipline Financial Reporting Quality Market Regulatory Authorities Auditors Private Contracting Detection of Financial Reporting Quality Issues: Introduction & Presentation Choices Presentation Choices Accounting Choices and Estimates How Accounting Choices and Estimates Affect Earnings and Balance Sheets How Choices that Affect the Cash Flow Statement Choices that Affect Financial Reporting Warning Signs 1) Pay attention to revenue. 2) Pay attention to signals from inventories. 3) Pay attention to capitalization policies and deferred costs. 4) Pay attention to the relationship of cash flow and net income. 5) Other potential warnings signs. Summary References Practice Problems Solutions Learning Module 10 Applications of Financial Statement Analysis Introduction & Evaluating Past Financial Performance Application: Evaluating Past Financial Performance Application: Projecting Future Financial Performance as an Input to Market Based Valuation Projecting Performance: An Input to Market-Based Valuation Projecting Multiple-Period Performance Application: Assessing Credit Risk Screening for Potential Equity Investments Framework for Analyst Adjustments & Adjustments to Investments & Adjustments to Inventory A Framework for Analyst Adjustments Analyst Adjustments Related to Investments Analyst Adjustments Related to Inventory Adjustments Related to Property, Plant, and Equipment Adjustments Related to Goodwill Summary References Practice Problems Solutions Corporate Issuers Learning Module 1 Corporate Structures and Ownership Introduction Business Structures Sole Proprietorship (Sole Trader) General Partnership Limited Partnership Corporation (Limited Companies) Public and Private Corporations Exchange Listing and Share Ownership Transfer Share Issuance Going Public from Private — IPO, Direct Listing, Acquisition Life Cycle of Corporations Lenders and Owners Equity and Debt Risk–Return Profiles Equity vs. Debt Conflicts of Interest Summary Practice Problems Solutions Learning Module 2 Introduction to Corporate Governance and Other ESG Considerations Introduction Stakeholder Groups Shareholder vs. Stakeholder Theory Shareholders Creditors/Debtholders Board of Directors Managers Employees Customers Suppliers Governments Principal–Agent and Other Relationships Shareholder and Manager/Director Relationships Controlling and Minority Shareholder Relationships Manager and Board Relationships Shareholder vs. Creditor (Debtholder) Interests Corporate Governance and Mechanisms to Manage Stakeholder Risks Shareholder Mechanisms Creditor Mechanisms Board of Director and Management Mechanisms Employee Mechanisms Customer and Supplier Mechanisms Government Mechanisms Corporate Governance and Stakeholder Management Risks and Benefits Operational Risks and Benefits Legal, Regulatory, or Reputational Risks and Benefits Financial Risks and Benefits ESG Considerations in Investment Analysis Introduction to Environmental and Social Factors Evaluating ESG-Related Risks and Opportunities Environmental, Social, and Governance Investment Approaches ESG Investment Approaches ESG Market Overview Summary References Practice Problems Solutions Learning Module 3 Business Models & Risks Introductory Context/Motivation What Is a Business Model? Business Model Features Customers, Market: Who Firm Offering: What Channels: Where Pricing: How Much Value Proposition (Who + What + Where + How Much) Business Organization, Capabilities: How Profitability and Unit Economics Business Model Types Business Model Innovation Business Model Variations E-Commerce Business Models Network Effects and Platform Business Models Crowdsourcing Business Models Hybrid Business Models Business Models: Financial Implications External Factors Firm-Specific Factors Business Risks Summary Macro Risk, Business Risk, and Financial Risk Risk Impacts Are Cumulative Business Risk: A Closer Look Industry Risks Industry Definition Company-Specific Risks Financial Risk Measuring Operating and Financial Leverage Summary Practice Problems Solutions Learning Module 4 Capital Investments Introduction Types of Capital Investments Business Maintenance Business Growth The Capital Allocation Process Investment Decision Criteria Net Present Value Internal Rate of Return Common Capital Allocation Pitfalls Corporate Use of Capital Allocation Real Options Timing Options Sizing Options Flexibility Options Fundamental Options Summary Practice Problems Solutions Learning Module 5 Working Capital & Liquidity Introduction Financing Options Internal Financing External Financing: Financial Intermediaries External Financing: Capital Markets Working Capital, Liquidity, and Short-Term Funding Needs Liquidity and Short-Term Funding Primary Sources of Liquidity Secondary Sources of Liquidity Drags and Pulls on Liquidity Measuring Liquidity Evaluating Short-Term Financing Choices Summary Practice Problems Solutions