CFA Refresher Readings
Equity: Study Session 11
Learning Outcome Statements
“Equity: Concepts and Techniques”
The practitioner should be able to:
- Discuss the most important issues, such as the information problem, that arise when investing internationally
- Contrast the major differences among national accounting standards and international accounting standards (IAS)
- Demonstrate the various steps involved in global industry analysis, including country analysis
- Discuss the concepts of business cycle synchronization and growth theory
- Distinguish between country analysis and industry analysis and compare and evaluate key concepts of industry analysis such as demand analysis, industry life cycle analysis, and competition structure analysis as well as risk elements inherent in industry analysis
- Demonstrate how to conduct a global industry analysis by analyzing the return potential and risk characteristics of a prospective investment in a global context
- Evaluate two common approaches of equity analysis (ratio analysis and discounted cash flow models including the franchise value model) and demonstrate how to find attractively priced stocks by using either of these methods
- Analyze the effects of inflation on asset valuation
- Discuss multi factor models as applied in the global context
“Competitive Strategy: The Core Concepts”
The practitioner should be able to:
- Analyze the competitive advantage and competitive strategy of a company and the competitive forces that affect the profitability of a company and discuss the two fundamental questions determining the choice of competitive strategy
- Explain how competitive forces determine industry profitability
- Analyze basic types of competitive advantage that a company can possess and the generic strategies for achieving a competitive advantage, the risks associated with each of the generic strategies, the difficulties and risks of simultaneously using more than one of the generic strategies, and the difficulties in sustaining a competitive advantage with any generic strategy
- Explain the role of a generic strategy in the strategic planning process
The practitioner should be able to:
- Discuss the key components that should be included in an industry analysis model
- Illustrate the life cycle of a typical industry
- Analyze the effects of business cycles on industry classification (i.e., growth, defensive, cyclical)
- Analyze the impact of external factors (e.g., technology, government, foreign influences, demography, and social changes) on industries
- Illustrate the inputs and methods used in preparing an industry demand-and-supply analysis
- Explain factors that affect industry pricing practices
“Valuation in Emerging Markets”
The practitioner should be able to:
- Describe how inflation affects the estimation of cash flows for a company domiciled in an emerging market
- Calculate nominal and real-term financial projections in order to prepare a discounted cash flow valuation of an emerging market company
- Discuss the arrangements for adjusting cash flows, rather than adjusting the discount rate, to account for emerging market risks (e.g., inflation, macroeconomic volatility, capital control, and political risk) in a scenario analysis
- Estimate the cost of capital for emerging market companies, and calculate and interpret a country risk premium
“Company Analysis and Stock Valuation”
The practitioner should be able to:
- Describe the elements of a franchise P/E
- Describe how an analyst can use the growth duration model to determine whether a firm’s P/E ratio is justified and describe the factors to consider when using the growth duration technique to infer a company’s P/E
"U.S. Portfolio Strategy:
Seeking Value − Anatomy of Valuation"
The practitioner should be able to:
- Explain why an analyst would use a ten-year moving average as a benchmark in the valuation process
- Determine the importance of correlation analysis when using a multi-matrix valuation approach
- Illustrate why the PEG valuation technique must be used with care
- Indicate the impact of discount rate sensitivity in valuation models