2024 CFA© Program Curriculum Level I Volume 3 Financial Statement Analysis, Equity Investments

How to Use the CFA Program Curriculum
	Designing Your Personal Study Program
		CFA Institute Learning Ecosystem (LES)
		Prerequisite Knowledge
		Feedback
Financial Statement Analysis
	Learning Module 1	Analysis of Income Taxes
		Introduction
		Differences between Accounting Profit and Taxable Income
			Taxable Temporary Differences
			Deductible Temporary Differences
			Taxable and Deductible Temporary Differences
			Permanent Differences
			Tax Expense
		Deferred Tax Assets and Liabilities
			Realizability of Deferred Tax Assets
		Corporate Income Tax Rates
		Presentation and Disclosure
		Practice Problems
		Solutions
	Learning Module 2	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 and Presentation Choices
			Presentation Choices
		Accounting Choices and Estimates
			How Accounting Choices and Estimates Affect Earnings and Balance Sheets
		Accounting Choices That Affect the Cash Flow Statement
		Accounting Choices that Affect Financial Reporting
		Warning Signs
			Pay Attention to Revenue
			Pay Attention to Signals from Inventories
			Pay Attention to Capitalization Policies and Deferred Costs
			Pay Attention to the Relationship between Cash Flow and Net Income.
			Look for Other Potential Warnings Signs
		References
		Practice Problems
		Solutions
	Learning Module 3	Financial Analysis Techniques
		Introduction
		The Financial Analysis Process
			The Objectives of the Financial Analysis Process
			Distinguishing between Computations and Analysis
		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 Income Statement
		Cross-Sectional, Trend Analysis, and 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
		Industry-Specific Financial Ratios
		Model Building and Forecasting
		References
		Practice Problems
		Solutions
	Learning Module 4	Introduction to Financial Statement Modeling
		Introduction
		Building a Financial Statement Model
			Company Overview
			Revenue Forecast
			COGS
			SG&A Expenses and Other Operating Expenses
			Operating Profit by Segment
			Non-Operating Items
			Corporate Income Tax Forecast
			Shares Outstanding
			Pro Forma Income Statement
			Pro Forma Statement of Cash Flows
			Capital Investments and Depreciation Forecasts
			Working Capital Forecasts
			Forecasted Cash Flow Statement
			Forecasted Balance Sheet
			Valuation Model Inputs
		Behavioral Finance and Analyst Forecasts
			Overconfidence in Forecasting
			Illusion of Control
			Conservatism Bias
			Representativeness Bias
			Confirmation Bias
		The Impact of Competitive Factors in Prices and Costs
			Cognac Industry Overview
		Modeling Inflation and Deflation
			Sales Projections with Inflation and Deflation
			Cost Projections with Inflation and Deflation
		The Forecast Horizon and Long-Term Forecasting
			Case Study: Estimating Normalized Revenue
		References
		Practice Problems
		Solutions
Equity Investments
	Learning Module 1	Market Organization and Structure
		Introduction
		The Functions of the Financial System
			Helping People Achieve Their Purposes in Using the Financial System
			Determining Rates of Return
			Capital Allocation Efficiency
		Assets and Contracts
			Classifications of Assets and Markets
		Securities
			Fixed Income
			Equities
			Pooled Investments
		Currencies, Commodities, and Real Assets
			Commodities
			Real Assets
		Contracts
			Forward Contracts
			Futures Contracts
			Swap Contracts
			Option Contracts
			Other Contracts
		Financial Intermediaries
			Brokers, Exchanges, and Alternative Trading Systems
			Dealers
			Arbitrageurs
		Securitizers, Depository Institutions and Insurance Companies
			Depository Institutions and Other Financial Corporations
			Insurance Companies
		Settlement and Custodial Services and Summary
			Summary 
		Positions and Short Positions
			Short Positions
		Leveraged Positions
		Orders and Execution Instructions
			Execution Instructions
		Validity Instructions and Clearing Instructions
			Stop Orders
			Clearing Instructions
		Primary Security Markets
			Public Offerings
			Private Placements and Other Primary Market Transactions
			Importance of Secondary Markets to Primary Markets
		Secondary Security Market and Contract Market Structures
			Trading Sessions
			Execution Mechanisms
			Market Information Systems
		Well-functioning Financial Systems
		Market Regulation
		Summary
		Practice Problems
		Solutions
	Learning Module 2	Security Market Indexes
		Introduction
		Index Definition and Calculations of Value and Returns
			Calculation of Single-Period Returns
			Calculation of Index Values over Multiple Time Periods
		Index Construction
			Target Market and Security Selection
			Index Weighting
		Index Management: Rebalancing and Reconstitution
			Rebalancing
			Reconstitution
		Uses of Market Indexes
			Gauges of Market Sentiment
			Proxies for Measuring and Modeling Returns, Systematic Risk, and Risk-Adjusted Performance
			Proxies for Asset Classes in Asset Allocation Models
			Benchmarks for Actively Managed Portfolios
			Model Portfolios for Investment Products
		Equity indexes
			Broad Market Indexes
			Multi-Market Indexes
			Sector Indexes
			Style Indexes
		Fixed-income indexes
			Construction
			Types of Fixed-Income Indexes
		Indexes for Alternative Investments
			Commodity Indexes
			Real Estate Investment Trust Indexes
			Hedge Fund Indexes
		Summary
		Practice Problems
		Solutions
	Learning Module 3	Market Efficiency
		Introduction
		The Concept of Market Efficiency
			The Description of Efficient Markets
			Market Value versus Intrinsic Value
		Factors Affecting Market Efficiency Including Trading Costs
			Market Participants
			Information Availability and Financial Disclosure
			Limits to Trading
			Transaction Costs and Information-Acquisition Costs
		Forms of Market Efficiency
			Weak Form
			Semi-Strong Form
			Strong Form
		Implications of the Efficient Market Hypothesis
			Fundamental Analysis
			Technical Analysis
			Portfolio Management
		Market Pricing Anomalies - Time Series and Cross-Sectional
			Time-Series Anomalies
			Cross-Sectional Anomalies
		Other Anomalies, Implications of Market Pricing Anomalies
			Closed-End Investment Fund Discounts
			Earnings Surprise
			Initial Public Offerings (IPOs)
			Predictability of Returns Based on Prior Information
			Implications for Investment Strategies
		Behavioral Finance
			Loss Aversion
			Herding
			Overconfidence
			Information Cascades
			Other Behavioral Biases
			Behavioral Finance and Investors
			Behavioral Finance and Efficient Markets
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 4	Overview of Equity Securities
		Importance of Equity Securities
			Equity Securities in Global Financial Markets
		Characteristics of Equity Securities
			Common Shares
			Preference Shares
		Private Versus Public Equity Securities
		Non-Domestic Equity Securities
			Direct Investing
			Depository Receipts
		Risk and Return Characteristics
			Return Characteristics of Equity Securities
			Risk of Equity Securities
		Equity and Company Value
			Accounting Return on Equity
			The Cost of Equity and Investors’ Required Rates of Return
		Summary
		References
		Practice Problems
		Solutions
	Learning Module 5	Company Analysis: Past and Present
		Introduction
		Company Research Reports
		Determining the Business Model
		Revenue Analysis
			Revenue Drivers
			Pricing Power
			Top-Down Revenue Analysis
		Operating Profitability and Working Capital Analysis
			Operating Costs and Their Classification
			Behavior with Output: Fixed and Variable Costs
			Natural and Functional Operating Cost Classifications and Measures of Operating Profitability
			Working Capital
		Capital Investments and Capital Structure
			Sources and Uses of Capital
			Evaluating Capital Investments and Capital Structure
		Practice Problems
		Solutions
	Learning Module 6	Industry and Competitive Analysis
		Introduction
		Uses of Industry Analysis
			Why Analyze an Industry?
			Improve Forecasts
			Identify Investment Opportunities
			Industry and Competitive Analysis Steps
		Industry Classification
			Third-Party Industry Classification Schemes
			Limitations of Third-Party Industry Classification Schemes
			Alternative Methods of Grouping Companies
		Industry Survey
			Industry Size and Historical Growth Rate
			Characterizing Industry Growth
			Industry Profitability Measures
			Market Share Trends and Major Players
		Industry Structure and External Influences
			Assessing the Five Forces: A Checklist Approach
			External Influences on Industry Growth
		Competitive Positioning
		References
		Practice Problems
		Solutions
	Learning Module 7	Company Analysis: Forecasting
		Introduction
		Forecast Objects, Principles, and Approaches
			What to Forecast?
			Focus on Objects That Are Regularly Disclosed
			Forecast Approaches
			Selecting a Forecast Horizon
		Forecasting Revenues
			Forecast Objects for Revenues
			Forecast Approaches for Revenues
		Forecasting Operating Expenses and Working Capital
			Cost of Sales and Gross Margins
			SG&A Expenses
			Working Capital Forecasts
		Forecasting Capital Investments and Capital Structure
		Scenario Analysis
		References
		Practice Problems
		Solutions
	Learning Module 8	Equity Valuation: Concepts and Basic Tools
		Introduction
		Estimated Value and Market Price
		Categories of Equity Valuation Models
		Background for the Dividend Discount Model
			Dividends: Background for the Dividend Discount Model
		Dividend Discount Model (DDM) and Free-Cash-Flow-to-Equity Model (FCFE)
		Preferred Stock Valuation
		The Gordon Growth Model
		Multistage Dividend Discount Models
		Multipler Models and Relationship Among Price Multiples, Present Value Models, and Fundamentals
			Relationships among Price Multiples, Present Value Models, and Fundamentals
		Method of Comparables and Valuation Based on Price Multiples
			Illustration of a Valuation Based on Price Multiples
		Enterprise Value
		Asset-Based Valuation
		Summary
		References
		Practice Problems
		Solutions
	Glossary