- Chapter 1 - 5
- 1. Ethics and Standards
- 1.1 Introduction
- 1.2 Code of Ethics
- 1.3 The Standards of Professional Conduct
- 1.4 Standard I-A: Knowledge of the Law
- 1.5 Standard I-B: Independence And Objectivity
- 1.6 Standard I-C: Misrepresentation
- 1.7 Standard I-D: Misconduct
- 1.8 Standard II-A: Material Nonpublic Information
- 1.9 Standard II-B: Market Manipulation
- 1.10 Standard III-A: Loyalty, Prudence And Care
- 1.11 Standard III-B: Fair Dealing
- 1.12 Standard: III-C: Suitability
- 1.13 Standard III-D: Performance Presentation
- 1.14 Standard III-E: Preservation Of Confidentiality
- 1.15 Standard IV: Duties to Employers, Standard IV-A: Loyalty
- 1.16 Standard IV-B: Additional Compensation Arrangements
- 1.17 Standard IV-C: Responsibilities Of Supervisors
- 1.18 Standard V-A: Diligence And Reasonable Basis
- 1.19 Standard V-B: Communication With Clients And Prospective Clients
- 1.20 Standard V-C: Record Retention
- 1.21 Standard VI-A: Disclosure Of Conflicts
- 1.22 Standard VI-B: Priority Of Transaction
- 1.23 Standard VI-C: Referral Fees
- 1.24 Standard VII: CFA Responsibilities
- 1.25 Disciplining CFA Members
- 1.26 Global Investment Performance Standards (GIPS)
- 1.27 GIPS: Composites And Verification
- 1.28 GIPS: Key Characteristics
- 1.29 GIPS: Disclosure And Scope
- 1.30 GIPS: Requirements And Recommendations
- 1.31 GIPS: Fundamentals Of Compliance And Conclusion
- 2. Quantitative Methods
- 2.1 Introduction
- 2.2 What Is The Time Value Of Money?
- 2.3 The Five Components Of Interest Rates
- 2.4 Time Value Of Money Calculations
- 2.5 Time Value Of Money Applications
- 2.6 Net Present Value and the Internal Rate of Return
- 2.7 Money Vs. Time-Weighted Return
- 2.8 Calculating Yield
- 2.9 Statistical Concepts And Market Returns
- 2.10 Basic Statistical Calculations
- 2.11 Standard Deviation And Variance
- 2.12 Skew And Kurtosis
- 2.13 Basic Probability Concepts
- 2.14 Joint Probability
- 2.15 Advanced Probability Concepts
- 2.16 Common Probability Distributions
- 2.17 Common Probability Distribution Calculations
- 2.18 Common Probability Distribution Properties
- 2.19 Confidence Intervals
- 2.20 Discrete and Continuous Compounding
- 2.21 Sampling and Estimation
- 2.22 Sampling Considerations
- 2.23 Calculating Confidence Intervals
- 2.24 Hypothesis Testing
- 2.25 Interpreting Statistical Results
- 2.26 Correlation and Regression
- 2.27 Regression Analysis
- 3. Microeconomics
- 3.1 Introduction
- 3.2 Supply and Demand
- 3.3 Price Elasticity
- 3.4 Elasticity of Demand
- 3.5 Elasticity of Supply
- 3.6 Marginal Benefit and Marginal Cost
- 3.7 Market Efficiency
- 3.8 Price Ceilings and Floors
- 3.9 Effect of Taxes on Supply and Demand
- 3.10 Opportunity Costs
- 3.11 Achieving Economic & Technological Efficiency
- 3.12 Types of Markets & Concentration Measures
- 3.13 Modifying Output
- 3.14 Marginal and Average Total Cost Curves
- 3.15 Perfectly Competitive Markets
- 3.16 Effects on Equilibrium in the Short and Long Run
- 3.17 Characteristics of Monopolies
- 3.18 Inefficiencies of Monopolies
- 3.19 Monopolistic Competition
- 3.20 Oligopolies
- 3.21 Conclusion
- 4. Macroeconomics
- 4.1 Introduction
- 4.2 Gross Domestic Product (GDP)
- 4.3 Nominal vs. Real GDP, and the GDP Deflator
- 4.4 Limitations of GDP and Alternative Measures
- 4.5 Components of Marginal Product and Marginal Revenue
- 4.6 The Demand and Supply of Financial and Physical Capital
- 4.7 Economic Rent and Opportunity Cost
- 4.8 Monitoring Cycles, Jobs, and Price Level
- 4.9 Key Labor Market Indicators
- 4.10 Types of Unemployment
- 4.11 The Consumer Price Index & Inflation
- 4.12 Aggregate Supply & Aggregate Demand
- 4.13 Short and Long-run Macroeconomic Equilibrium
- 4.14 Economic Theories
- 4.15 Money, Banks, and the Federal Reserve
- 4.16 The Banking System
- 4.17 Goals and Targets of the U.S. Federal Reserve
- 4.18 Money, Interest, Real GDP, and the Price Level
- 4.19 The Equation of Exchange
- 4.20 Inflation
- 4.21 Phillips Curve
- 4.22 Fiscal Policy Basics
- 4.23 Effects of Fiscal Policy
- 4.24 The Multiplier Effect
- 4.25 Discretionary Fiscal Policy and Automatic Stabilizers
- 4.26 Monetary Policy and Price Level Stability
- 4.27 Expectations of Monetary Policy
- 5. Global Economic Analysis
- 5.1 Introduction
- 5.2 Production Possibility Curves
- 5.3 Trade Efficiency Rule
- 5.4 Terms of Trade
- 5.5 Tariffs and Quotas
- 5.6 Trade Restrictions
- 5.7 International Finance
- 5.8 Purchasing Power Parity and Interest Rate Parity
- 5.9 Foreign Exchange
- 5.10 Spread Calculations
- 5.11 Spot Market Calculations
- 5.12 Forward Market Calculations
- 5.13 Interest Applications
- 5.14 Foreign Exchange Parity Relations
- 5.15 Currency Appreciation and Depreciation
- 5.16 Effect of Monetary Policy
- 5.17 Fixed vs. Pegged Exchange Rate Systems
- 5.18 Absolute and Relative Purchasing Power Parity
- 5.19 Relative Purchasing Power Parity
- 1. Ethics and Standards
- Chapter 6 - 10
- 6. Financial Statements
- 6.1 Introduction
- 6.2 Financial Statement Analysis
- 6.3 Accounting Process
- 6.4 Income Statement Basics
- 6.5 Income Statement Components
- 6.6 Income Statement: Non-recurring Items
- 6.7 Balance Sheet Basics
- 6.8 Balance Sheet Components - Assets
- 6.9 Balance Sheet Components - Liabilities
- 6.10 Balance Sheet Components - Marketable & Nonmarketable Instruments
- 6.11 Shareholders' (Stockholders') Equity Basics
- 6.12 Components of Stockholders' Equity
- 6.13 Accounting for Dividends
- 6.14 Accounting for Equities
- 6.15 Revenue Recognition
- 6.16 Revenue Recognition Methods and Implications
- 6.17 Revenue Recognition and Accounting Entries
- 6.18 Revenue Recognition Effects on Cash Flows and Financial Ratios
- 6.19 The Cash Flow Statement
- 6.20 Cash Flow Statement Basics
- 6.21 Cash Flow Computations - Indirect Method
- 6.22 Cash Flow Computations - Direct Method
- 6.23 Free Cash Flow
- 6.24 Management Discussion and Analysis & Financial Statement Footnotes
- 6.25 The Auditor and Audit Opinion
- 6.26 Financial Reporting Objectives and Enforcement
- 6.27 Accounting Qualities
- 6.28 Setting and Enforcing Global Accounting Standards
- 7. Financial Ratios
- 7.1 Introduction
- 7.2 Internal Liquidity Ratios
- 7.3 Operating Profitability Ratios
- 7.4 Return on Investment Ratios
- 7.5 Operating Efficiency Ratios
- 7.6 Business Risk Ratios
- 7.7 Financial Risk Ratios
- 7.8 Growth Potential Ratios
- 7.9 Return on Equity and the Dupont System
- 7.10 Uses and Limitations of Financial Ratios
- 7.11 Basic Earnings Per Share
- 7.12 Dilutive Effect of Splits and Dividends
- 7.13 Dilutive Securities
- 7.14 Calculating Basic and Fully Diluted EPS in a Complex Capital Structure
- 8. Assets
- 8.1 Introduction
- 8.2 Choosing the Appropriate Accounting Method For Investment Securities
- 8.3 Accounting for Credit Transactions
- 8.4 Basics of Inventories
- 8.5 Effects of Misstated Inventory
- 8.6 Inventory Valuation
- 8.7 Inventory Analysis
- 8.8 Converting LIFO to FIFO
- 8.9 Converting FIFO to LIFO
- 8.10 Effects of Inventory Accounting
- 8.11 Causes a Decline in LIFO Reserve
- 8.12 Long Term Asset Basics
- 8.13 Depreciation Accounting
- 8.14 Accelerated Depreciation
- 8.15 Natural Resource Assets
- 8.16 Effects of Capitalizing vs.Expensing
- 8.17 Computing the Effect of Capitalizing vs. Expensing
- 8.18 Capitalizing Intangible Assets
- 8.19 Depreciation
- 8.20 Fixed Asset Disclosures
- 8.21 Asset Impairment
- 9. Liabilities
- 9.1 Introduction
- 9.2 Current Liability Basics
- 9.3 Income Tax Terminology
- 9.4 Tax Deferred Liabilities
- 9.5 Permanent Vs. Temporary Items
- 9.6 Adjustments To Financial Statements From Tax Rate Changes
- 9.7 Long-Term Liability Basics
- 9.8 Journal Entries and Accounting Impact
- 9.9 Total Interest Cost Components
- 9.10 Reporting The Retirement Or Conversion of Bonds
- 9.11 Accounting For Long-Term Liabilities
- 9.12 Post-Retirement Obligations
- 9.13 Effects Of Debt Issuance
- 9.14 Implications Of Debt Issuance
- 9.15 Effect Of Changing Interest Rate On Debt Market Value
- 9.16 Capital And Operating Leases
- 9.17 Effects Of Capital Vs. Operating Leases
- 9.18 Determining The Value Of The Lease And The Lease Asset
- 9.19 Sale And Leaseback
- 9.20 Types Of Off-Balance-Sheet Financing
- 9.21 Effects Of Off-Balance Sheet Financing Transactions On Financial Ratios
- 9.22 Accounting For Leases
- 10. Red Flags
- 6. Financial Statements
- Chapter 11 - 15
- 11. Corporate Finance
- 11.1 Introduction
- 11.2 Agent-Principle Relationship
- 11.3 Capital Budgeting Basics
- 11.4 The Cost of Capital
- 11.5 Cost of Retained Earnings
- 11.6 Cost of Newly Issued Stock
- 11.7 Target Capital Structure
- 11.8 Marginal Cost of Capital
- 11.9 Factors Affecting the Cost of Capital
- 11.10 Payback Period
- 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR)
- 11.12 The NPV Profile
- 11.13 Cash Flow and NPV Applications
- 11.14 Advantages and Disadvantages of the NPV and IRR Methods
- 11.15 Applying NPV Analysis to Project Decisions
- 11.16 Comparing Projects With Unequal Lives
- 11.17 Types of Risk
- 11.18 Risk-Analysis Techniques
- 11.19 Security Market Line and Beta Basics
- 11.20 Factors that Influence a Company's Capital-Structure Decision
- 11.21 Business and Financial Risk
- 11.22 Operating Leverage and its Effects on a Project's Expected Rate of Return
- 11.23 Financial Leverage
- 11.24 Sales and Leverage
- 11.25 Effects of Debt on the Capital Structure
- 11.26 Tax and Bankruptcy Costs
- 11.27 The MM Capital Structure vs. The Tradeoff Theory of Leverage
- 11.28 Signaling Prospects Through Financing Decisions
- 11.29 Degree of Total Leverage
- 11.30 Dividend Theories
- 11.31 Dividend Growth Rate and the Effect of Changing Dividend Policy
- 11.32 Setting Dividends
- 11.33 Dividend Payment Procedures
- 11.34 Stock Dividends and Repurchases
- 12. Securities Markets
- 12.1 Introduction
- 12.2 Issuing Bonds
- 12.3 Types of Markets
- 12.4 Exchange Market Structure
- 12.5 Exchange Market Characteristics
- 12.6 Short Selling
- 12.7 Buying on Margin and Maintenance Margin
- 12.8 Effects of the Institutionalization of capital markets
- 12.9 Characteristics of Security Indexes
- 12.10 Computing Indexes
- 12.11 Domestic vs. Global Indexes
- 12.12 The Efficient Market Hypothesis
- 12.13 Weak, Semi-Strong and Strong EMH
- 12.14 Market Anomalies
- 12.15 Implications of Efficient Markets
- 13. Equity Investments
- 13.1 Introduction
- 13.2 Security Valuation
- 13.3 The Dividend Discount Model (DDM)
- 13.4 DDM and the Earnings Multiplier
- 13.5 Developing Input Estimates Used in the DDM
- 13.6 Earnings Analysis
- 13.7 Determining the EPS of a Company
- 13.8 Life Cycle Analysis: The Business Cycle
- 13.9 Life Cycle Analysis: The Industry Life Cycle
- 13.10 The Concentration Ratio and the Herfindahl Index
- 13.11 Considerations of Global Industry Competition
- 13.12 Analyzing a Company - Types of Stock
- 13.13 Technical Analysis
- 13.14 Using Price Multiples
- 14. Fixed Income Investments
- 14.1 Introduction
- 14.2 Bond Features
- 14.3 Basic Coupon Structures
- 14.4 Early Retirement
- 14.5 Provisions for Redeeming Bonds
- 14.6 Refunding
- 14.7 The Importance of Embedded Options
- 14.8 Institutional Investors and Financing Purchases
- 14.9 Interest Rate Risk
- 14.10 Call and Prepayment Risk
- 14.11 Reinvestment Risk
- 14.12 Yield Curve Risk
- 14.13 Credit Risk
- 14.14 Liquidity Risk
- 14.15 Exchange-Rate Risk
- 14.16 Volatility Risk
- 14.17 Inflation Risk
- 14.18 Event Risk
- 14.19 Pricing Bonds
- 14.20 Duration
- 14.21 International Bonds
- 14.22 Government Bonds
- 14.23 Mortgage-Backed Securities (MBS)
- 14.24 Federal Issues
- 14.25 Bondholder's Rights
- 14.26 Other Types of Bonds
- 14.27 Asset-Backed Securities (ABS)
- 14.28 Yield Curves
- 14.29 The Term Structure of Interest Rates
- 14.30 Types of Yield Measures
- 14.31 Intermarket vs. Intramarket Sector Spreads
- 14.32 Options and their Benefits
- 14.33 After Tax Yield of a Taxable Security
- 14.34 London Interbank Offer Rate (LIBOR)
- 14.35 Bond Valuation Basics
- 14.36 Cash Flow
- 14.37 Bond Value and Price
- 14.38 Arbitrage-free Valuation Approach
- 14.39 Typical Yield Measures
- 14.40 Assumptions Underlying Traditional Yield Curve Measures
- 14.41 Importance of Reinvestment Income and Reinvestment Risk
- 14.42 Spot Rates and Bond Valuation
- 14.43 Differentiating Between Spreads
- 14.44 What are Forward Rates?
- 14.45 Forward Rates vs Spot Rates
- 14.46 Measuring Interest Rate Risk
- 14.47 Price Volatility
- 14.48 Effective, Modified, and Macaulay Duration
- 14.49 Convexity
- 14.50 Price Value of a Basis Point (PVBP)
- 15. Derivatives
- 15.1 Introduction
- 15.2 What is a Derivative?
- 15.3 Common Characteristics of Futures and Forwards
- 15.4 Fundamental Differences Between Futures and Forwards
- 15.5 Forward Contracts
- 15.6 Future Contracts
- 15.7 Options: Calls and Puts
- 15.8 Options: Basic Characteristics
- 15.9 Swaps
- 15.10 Purposes and Benefits of Derivatives
- 15.11 Criticisms of Derivatives
- 15.12 Arbitrage
- 15.13 Forward Markets and Contracts: Settlement Procedures
- 15.14 Terminating a Forward Contract Prior to Expiration
- 15.15 End Users and Dealers
- 15.16 Equity Forward Contracts
- 15.17 Forward Contracts on Bonds
- 15.18 Eurodollar Time Deposit Markets
- 15.19 Characteristics of Forward Rate Agreements (FRAs)
- 15.20 Currency Forward Contracts
- 15.21 Futures vs. Forwards
- 15.22 Futures Markets Margin
- 15.23 The Futures Trade Process
- 15.24 Computing the Margin Balance for a Futures Account
- 15.25 Closing and Terminating a Futures Position
- 15.26 Other Types of Derivatives
- 15.27 European vs. American Options and Moneyness
- 15.28 Exchange Traded Options
- 15.29 Interest Rate Options vs. FRAs
- 15.30 Interest Rate Caps and Floors
- 15.31 Minimum and Maximum Values for Options
- 15.32 Straddles and Strangles
- 15.33 Option Prices and the Time to Expiration
- 15.34 Put-Call Parity
- 15.35 Effect of Cash Flows on Put-Call Parity and the Lower Bounds
- 15.36 Swap Markets and Contracts
- 15.37 Currency Swaps
- 15.38 Interest Rate and Equity Swaps
- 15.39 Managing Risk with Options Strategies: Long and Short Call and Put Positions
- 15.40 Managing Risk with Options Strategies: Covered Calls and Protective Puts
- 11. Corporate Finance
- Chapter 16 - 17
- 16. Alternative Investments
- 16.1 Introduction
- 16.2 Open and closed-end funds
- 16.3 Net Asset Value
- 16.4 Fees
- 16.5 Investment Strategies
- 16.6 Exchange Traded Funds (ETFs)
- 16.7 Real Estate Investments
- 16.8 Real Estate Calculations
- 16.9 The Stages in Venture Capital Investing
- 16.10 Venture Capital Investment Characteristics and NPV
- 16.11 Hedge Fund Basics
- 16.12 Hedge Fund Classifications
- 16.13 Hedge Fund Risks and Performance
- 16.14 Fund of Funds Investing
- 16.15 Alternative Investment Valuation
- 16.16 Commodities as Alternative Investments
- 17. Portfolio Management
- 17.1 Introduction
- 17.2 Rate of Return Basics
- 17.3 The Risk Premium
- 17.4 The Security Market Line (SML)
- 17.5 The Portfolio Management Process
- 17.6 Return Objectives and Investment Constraints
- 17.7 Portfolio Management Theories
- 17.8 Portfolio Calculations
- 17.9 Capital Market Theory
- 17.10 The Capital Market Line
- 17.11 The Capital Asset Pricing Model (CAPM)
- 16. Alternative Investments
Financial Ratios - Operating Efficiency Ratios
OPERATING EFFICIENCY RATIOS
1. Total Asset Turnover
This ratio measures a company's ability to generate sales given its investment in total assets. A ratio of 3 will mean that for every dollar invested in total assets, the company will generate 3 dollars in revenues. Capital-intensive businesses will have a lower total asset turnover than non-capital-intensive businesses.
Formula 7.25
2. Fixed-Asset Turnover
This ratio is similar to total asset turnover; the difference is that only fixed assets are taken into account.
Formula 7.26
3.Equity Turnover
This ratio measures a company's ability to generate sales given its investment in total equity (common shareholders and preferred stockholders). A ratio of 3 will mean that for every dollar invested in total equity, the company will generate 3 dollars in revenues.
Formula 7.27
1. Total Asset Turnover
This ratio measures a company's ability to generate sales given its investment in total assets. A ratio of 3 will mean that for every dollar invested in total assets, the company will generate 3 dollars in revenues. Capital-intensive businesses will have a lower total asset turnover than non-capital-intensive businesses.
Formula 7.25
| Total asset turnover = net sales / average total assets |
2. Fixed-Asset Turnover
This ratio is similar to total asset turnover; the difference is that only fixed assets are taken into account.
Formula 7.26
| Fixed-asset turnover = net sales / average net fixed assets |
3.Equity Turnover
This ratio measures a company's ability to generate sales given its investment in total equity (common shareholders and preferred stockholders). A ratio of 3 will mean that for every dollar invested in total equity, the company will generate 3 dollars in revenues.
Formula 7.27
| Equity turnover = net sales / average total equity |
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