fsa tips for cfa preparation by pristine (annotated)

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CFA Level IFinancial Reporting and Analysis

June 2011

© Neev Knowledge Management – Pristine

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Agenda

• Introduction and context

• Understanding the CFA Examination Structure

• Introduction to FSA

– FSA – Understanding Income Statement & Key Line Items

– Key Concept Checkers

• Complete Offering & Registration

• Next Seminar

2

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Pristine has been started by professionals with diverse experience in financial services, IT and Auto who are alumnus of IITs & IIMs

Pristine

Classroom/ Online delivery (synchronous and asynchronous) – To increase reach and improve efficiency of learning. Conducted 15+ batches with over 300 hours of recorded content

Innovative content – To improve understanding & learning capability of students. VisualizeFRM, VisualizeCFA as one of the best selling products

Founded with an aim of creating world class professionals in the area of finance –particularly risk management and investment banking

Topic Expert Model (TEM ) – Industry professionals bring invaluable industry perspective for students. Pool of 300+ working professionals as active faculty members with the likes of CFA regional directors, Presidents of various banks

Testimonial - 53% of the students join us on the basis of referral is a testimonial of the effective training methodologies

Effective training methodologies to improve the performance

of the students and enhance the employability

© Neev Knowledge Management – Pristine 3

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Seminar MaterialNot for SaleKey Authorization

GARP (2007-10)

Authorized Training provider -FRM

Largest player in India in the area of risk management training. Trained 1000+ students in risk management

PRMIA (2009-10)

Authorized Training provider – PRM/ APRM

Sole authorized training for PRM Training in India. Largest player in India in the area of risk management training. Trained 1000+ students in risk management

CFA Institute (2010-11)

Authorized Training provider – CFA

Pristine is now the authorized training provider for CFA Exam trainings . Pristine is largest training provider for CFA in India with presence across seven major cities.

FPSB India (2010-11)

Authorized Training provider -CFP

An authorized Education Provider for Chartered Financial Planner Charter.


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Seminar MaterialNot for SaleKey Associations*

HSBC (2008)

Risk Management and Quant. Analysis

New joinees in HSBC had a gap in knowledge of Risk Management and quantitative skills. Conducted trainings (On campus) to bridge the gap

*Indicative List

Mizuho (2010)

Financial Modeling in Excel

Bankers were using excel models that they could not understand. Conducted financial modeling in Excel trainings to

bridge the gap

Bank Of America

Continuum Solutions (2010)


Associates were trained on valuation and mergers and acquisitions

J. P. Morgan (2010)


The Real Assets Group were trained in Excel for infrastructure and real-estate

modeling

Franklin Templeton

CFA (2010)

Students were facing a gap in the overall understanding of finance topics like corporate finance, FSA and valuation. Provided training for over 100 hours to bridge the gap

Credit-Suisse India (2009)

Risk Management and Quant. Analysis

IT Professionals of Credit-Suisse India were trained on risk management.


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Seminar MaterialNot for Sale…Key Associations

IIM Calcutta (2010)


Students about to go for internships and join jobs found a gap in their grasp of

knowledge of excel for financial modeling. Conducted training for 75+

students with an average rating of 4.5+

BITS Pilani (2009)

Workshops on Basics of Finance

Most of the students desire a career in finance. Conducted training for 350+ students with an average rating of 4.5+

IIT Delhi (2009)

Corporate finance

Students get placed in finance companies (UBS, GS, MS, etc) with no understanding of the subject/ Job Profile. Conducted workshop to bridge the gap

Sydneham College (2009)


Students about to join jobs found a gap in their grasp of excel for financial modeling. Conducted 40+ hours of training and helped students be ready for job

NISM (2008)

Derivatives workshop for Hedging

Corporate in Ludhiana incurred huge losses because of derivative trades (for hedging). Conducted trainings for directors and CFOs for better understanding of derivative products

FMS Delhi (2010)


Final Year MBA students of Faculty of Management Studies, Delhi University were trained in financial modeling so as

to prepare them better for a job in finance.


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Trainer

• Extensive experience in the financial services, consulting and training domain. He has extensive knowledge of the financial services industry, where he raised growth capital for organizations and helped them improve their revenues. He has authored research papers and trained 1000s of senior people in the area of financial modeling, quantitative analysis and risk management.

•Prior to founding Pristine, Paramdeep has worked in senior management positions as an Investment Banker with Standard Chartered Capital Markets (India) and as a consultant with Accenture Management Consulting.

• Work experience as Industry Practitioner

• Consultant to Reliance Energy (Power), strategizing their growth and cutting down the losses in energy distribution. He has helped them formulate their business plan.

• Assisted clients in raising capital through Private Equity & IPO by analyzing & modeling business plans, preparing IM/DRHP, ensuring regulatory compliance and marketing the issue. He has Successfully placed two IPOs worth Rs. 100 Crore & achieved subscription of 32 & 11 times.

• Experience as Trainer

• He has trained participants from HSBC, JP Morgan, Mizuho Bank , ING Vysya, Bank of America for financial modeling in excel, receiving very good rating.

• Has conducted workshops and training courses in IIM Calcutta, Sydneham, Welingkar on financial modeling in Excel receiving rave reviews

• Published research papers & articles in leading news papers in the field of risk management and Basel II accords, which are now used by leading banks as reference material.

• Paramdeep is an MBA from IIM Indore, where he secured the highest CGPA in his batch. He has completed his B. Tech and M. Tech in Mathematics and Computing from IIT Delhi

Paramdeep Singh, Director and Faculty, Pristine


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CFA – Your Clear Interest in finance

• CFA charter provides you with a strong foundation for a variety of career choices in the investment profession

– Interested in portfolio management, investment research, advisory services, or investment banking, you will benefit from a CFA charter

* CFA Institute website


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Agenda







• Next Seminar

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Course Structure

Topic Area Level I

Ethical and Professional Standards 15

Quantitative Methods 12

Economics 10

Financial Reporting and Analysis 20

Corporate Finance 8

Equity Investments 10

Fixed Income 12

Derivatives 5

Alternative Investments 3

Portfolio Management 5


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Atul,[email protected] +91-93221 94932

Way to CFA

• Each exam is six hours long and is split between morning and afternoon sessions. There is a two-hour lunch break at the end of the morning session.

– The Level I exam is composed of multiple-choice questions and is offered in June and December.

– The Level II exam is composed of item-set questions and is offered in June only.

– The Level III exam is composed of item-set and essay questions and is offered in June only.

• Score matrix provided on the exam results is an indicator of overall performance

– The “<=50%” range is considered poor;

– “51%–70%” is considered poor to average;

– “>70%” is considered average to above average

Key to crack CFA Level I is by doing well in Ethics and FSA


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Seminar MaterialNot for SaleFees Structure Levels I - Deadlines


by 22 September by 16 February by 16 March

Program Enrollment (new Level I only)

$405 $405 $490

Exam Registration $630 $720 $970

‒ Curriculum eBook version

save $40 save $40 save $40

‒ Curriculum Print version

$ 20 (shipping) $ 20 (shipping) $ 20 (shipping)

‒ Curriculum eBook+Print version

$ 50 (incl. shipping) $ 50 (incl. shipping) $ 50 (incl. shipping)

CFA Institute now offers three options to all its candidates. You can either choose to obtain thecurriculum in i) eBook form; ii) Print form or iii) Both eBook and in Print

Suppose a candidate chooses to enroll by 16th Feb and chooses the ebook version then her total costwill be = 405 + 720 – 40 = $1085. If she had taken the print version she will pay 405+720+20(shipp.Charges) = $1145

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Agenda







• Next Seminar

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Financial Statements

• There are five broad groupings for financial statement elements


• Economic resources of a companyAssets

• Creditor’s claim on the company’s resourcesLiabilities

• Residual claim on the resourcesOwner’s Equity

• Inflows of economic resources to the companyRevenue

• Outflows of economic resources or increases in liabilitiesExpenses

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© Neev Knowledge Management – Pristine Careers 15

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Agenda







• Next Seminar

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Income Statement & Component Line Items

• The income statement is also referred as the statement of operations or P&L statement

• Basic equation underlying the income statement

Revenue – Expenses = Net Income/ (Loss)


Components of an Income Statement

Revenue

Revenue, sales

Gains

Investment Income (eg. Interest, Dividends)

Expenses

Cost of goods sold

SG & A

Depreciation & Amortization

Interest Expense

Tax Expense

Losses

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Wages

material

Depreciation

Production Employees

Suppliers Employees/Suppliers

Non-Cash Sales Advertising DebtInvestors

Support Staff Non-Cash Govt. Non-Cash Equity Investors

Revenue

Overhead

Wages

Sales

Marketing

Amortization

Interest

Income Tax

Deferred Taxes

Net Income

SG&A

Cost of Goods Sold

Taxes

EBITA

Gross Profit

Operating Profit (EBIT)

Profit before tax

Net income

Introduction to Income Statement

Non Cash Expenses

EBITDA EBITA Dep.


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Wages

material

Depreciation

Production Employees

Suppliers Employees/Suppliers

Non-Cash Sales Advertising DebtInvestors

Support Staff Non-Cash Govt. Non-Cash Equity Investors

Revenue = $50 *2 = $100

Overhead

Wages

Sales

Marketing

Amortization

Interest

Income Tax

Deferred Taxes

Net Income

SG&A = $0.4*50 = $20

Cost of Goods Sold = $0.8*50 = $40

Taxes = $ 14

Gross Profit = 100-40 = $ 60

Profit before tax = 60 – 20 = $ 40

Net income = 40 -14 = $ 26

Introduction to Income Statement - Example


A business man sells 50 candies each worth $2.Cost of manufacturing each candies is $0.8Sales and marketing expenses are $0.4And the business is taxed at 35%

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Concept Checkers

1. Which of the following best describes an income statement?

A. An income statement reports changes over a period of time in component accounts thatcomprise the ownership of a firm.

B. An income statement summarizes the financial position of a company at a given point in time.

C. An income statement measures a company's financial performance over a specified period oftime.


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23

Basis of Accounting

• There are two methods of accountings

– Cash basis of Accounting

– Accrual basis of Accounting

• Cash accounting

– Focuses on when cash is received and paid out

• Revenue is accounted for when cash is received

• Expense is accounted for when cash is paid out

– Might not properly match revenues and expenses incurred within a period

Recognition of revenue in Cash Accounting

Contract Awarded

Consultant Hired Work Completed

Payment received

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24

Basis of Accounting

• Accrual basis of Accounting

– Focuses on the economic impact of the transaction

• Revenue reported when earned

• Expenses reported when incurred

– Properly matches revenues and expenses in determining net income

– Requires adjusting entries at the end of period (e.g. Depreciation)

Recognition of revenue in Accrual method

Cash Paid to Consultant

Contract Awarded

Consultant Hired

Work CompletedPayment received

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25

Understanding the Income Statement – Matching Principle

• Items in Income Statements follows MATCHING PRINCIPLE, which Includes Two Steps:

– Identify all expenses incurred during the accounting period

– Measures the expenses and matches those expenses against revenues earned

• According to the principle – expenses are recognized when obligations are

– Incurred (usually when goods are transferred or services rendered, e.g. sold), and

– Offset against recognized revenues, which were generated from those expenses (related on the cause-and-effect basis), no matter when cash is paid out

The cost is recognized in the same period as the work is completed

Cash Paid to Consultant

Contract Awarded

Consultant Hired

Work Completed

Payment received

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Accrual Based Accounting

• Accrual based accounting results into 4 type of accounts

• Accrued revenue

– Goods or services are sold but cash is not received – hence revenue increases and Accounts receivable (an asset) increases.

– On receipt of cash, cash increases and accounts receivable decreases

• Unearned revenue:

– Receives cash in advance before it provides goods

• Cash increases and unearned revenue, a liability, increases by the same amount.

• On firm providing good or service, revenue increases and the liability decreases

• E.g. Magazine subscription

• Prepaid expenses (Advance rent / electricity)

– Pays cash for expenses before they are incurred

• Cash (an asset) decreases and prepaid expense (also an asset) increases.

• Prepaid expense decreases and expenses increase when the expense is actually incurred.

• Accrued expenses. Expenses incurred but cash not paid hence liability

‒ Expenses increase and a liability for accrued expenses increases as well

‒ The liability decreases when the firm pays cash for expenses.


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Concept Checkers

1. The accrual basis of accounting________.

A. Does not pertain to revenue recognition-only expense recognition.

B. Recognizes the development of assets and liabilities externally.

C. Allocates many transactions that produce cash flows to time periods other than those in whichthe cash flows occur.


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Ratio Analysis

• Ratio analysis is useful as it helps us put numbers in perspective.

• It is also useful for comparing companies with different sizes and companies from different industries.

• It also helps in providing meaningful relationships between different accounting elements.

• Types of ratios are as follows -

Ratio Analysis

Profitability Ratios Solvency Ratios Activity Ratios Debt Ratios Market Ratios


Income Ratios Balance Sheet Ratios Mixed Ratios

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Profitability Ratios

SalesNet

COGSSalesNet

SalesNet

ofitGrossinMofitGross

−

==

PrargPr


SalesNet

ofitNetinMofitNet

PrargPr =

EquitysrShareholdeAverage

IncomeNetRoE

'=

AssetsTotal

IncomeNetRoA =

CapitalInvested

taxEBITRoC

)1(* −

=

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Agenda







• Next Seminar

30

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Questions

1. Which of the following ratios is a measure of profitability

A. Current ratio

B. Fixed asset turnover ratio

C. Pretax margin ratio

2. Are income taxes and cost of goods sold examples of expenses classified by nature or classified by function in the income statement?

A. Income Taxes: Nature, Cost of goods sold: Function

B. Income Taxes: Function, Cost of goods sold: Nature

C. Income Taxes: Function, Cost of goods sold: Function


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Concept Checkers

1. Company ABC has a net profit margin of 15.4%, while total asset turnover is 1.2 andleverage is 0.7. The return on equity for Company ABC is closest to

A. 14.52%

B. 12.94%

C. 11.43%


%94.127.0*2.1*%4.15** === LeverageTATNPMRoE

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Agenda







• Next Seminar

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About CFA Prep School

School for CFA Prep is

a 100 Hrs extensive training program*

that can enable you

to prepare for and crack CFA Level I Examination

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About School for CFA Prep



that can enable you

to prepare for and crack CFA Level I Exam

• Extensive 100 Hours coverage

• 16 days 5 hrs of regular classes

• 3 days 5 hrs of revision classes

• 2 Mock tests

• Extensive Question Bank to

prepare and Practice

• 2 Hrs of one-to-one doubt

clearing sessions*

• Qualified faculty with CFA

Charters and extensive industry

and teaching experience

=

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About HR Analytics

• Proven credentials in successfully

training CFA aspirants

• Actionable and Innovative Material

• Complete Slide Pack

• Each Session followed by Quiz

• Adaptive feedback based on Quiz

• Mock tests and feedback

• Individual doubt solving session

• CFA Visualized Formula Charts

• Summarized Recordings for

revision

=



that can enable you

to prepare for and crack CFA Level I Exam

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Tentative Schedule - Feb

* Indicative list – Subject to Change

Date Day Course Topic

19/Feb/11 Sat CFA-Level-I Financial Reporting & Analysis -I

20/Feb/11 Sun CFA-Level-I Financial Reporting & Analysis -II

26/Feb/11 Sat CFA-Level-I Financial Reporting & Analysis -III

27/Feb/11 Sun CFA-Level-I Financial Reporting & Analysis -IV

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Tentative Schedule - Mar


05/Mar/11 Sat CFA-Level-I Quant-I

06/Mar/11 Sun CFA-Level-I Quant-II

12/Mar/11 Sat CFA-Level-I Quant-III

13/Mar/11 Sun CFA-Level-I Ethics

26/Mar/11 Sat CFA-Level-I Corporate Finance

27/Mar/11 Sun CFA-Level-I Equity Investments-I


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Tentative Schedule - Apr


02/Apr/11 Sat CFA-Level-I Equity Investments-II

03/Apr/11 Sun CFA-Level-I Fixed Income Investments-I

09/Apr/11 Sat CFA-Level-I Fixed Income Investments-II

10/Apr/11 Sun CFA-Level-I Derivatives-I

16/Apr/11 Sat CFA-Level-I Derivatives-II

17/Apr/11 Sun CFA-Level-IAlternative Investments + Portfolio Mgmt

23/Apr/11 Sat CFA-Level-I Economics-I

24/Apr/11 Sun CFA-Level-I Economics-II

30/Apr/11 Sat CFA-Level-I Economics-III


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How it works?

1 2 3 4 5

You signup for the program by making payment of USD 1000*

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How it works?

1 2 3 4 5

Start Preparation with material and Live Interactive Class

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How it works?

1 2 3 4 5

Work on the Problem sets/ Quizzes adapting preparation Style

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How it works?

1 2 3 4 5

Give Mock Tests/ Ask Doubts/ Revise and Complete Preparation

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How it works?

1 2 3 4 5

Plan and Achieve Success in CFA Level I Exam

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Methodology

Each topic will be explained through

Conceptual Discussion, Examples, Tests, Quizzes, Actionable

Presentations, Visualized Charts and Q&A

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What to expect at the end?

Towards the end of School for CFA Prep*

You will be able to learn the topics related to CFA Level I Exam

You will know how to solve the questions asked in CFA Level I Exam

You will get an industry perspective of the topics

You will get a certificate of participation

*assuming you follow the program and practice

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About the Program

100 hours of Active Learning & Networking

Venue: Online

Starting Date: 19 Feb, 2011

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Cost of the Program

USD 995For individual registrations

USD 795For participants joining in groups of 5 or more

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Contact Details

Questions & Doubts?

Please e-mail me at [email protected]

or visit http://www.edupristine.com

or call +91 989 298 0608

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To Register

• Wire Transfer

– Bank Name: HDFC Bank

– Country: India

– Swift Code: HDFCINBB

– Account Name: Neev Knowledge Management Pvt Ltd

– Account Number: 00602560008449

• Paypal to Paypal (Preferred)

– Create a Personal paypal account (it is free)

– After Logging in, click on tab "My Account" and then on "Profile". Link Paypal account with your credit card

or bank account

– Click on the tab "Send Money"

– In the "To" tab enter the email id - [email protected]

– Pay the fees as per package required.

• Credit Card to Paypal

– You can make the payment from your credit card to Paypal account.

– Please make the payment to email id - [email protected]


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Course Classroom Trainings

Online Trainings

Content Crash Course/Mock Test

Hours of Training

Accreditation Price

CFA Level I All* + Singapore**

Yes Original Yes 100 Under Process USD 1000;INR 17,950

CFA Level II Mumbai, Delhi From 2010 Original From 2010 80 Under Process USD 1000;INR 16,950

FRM Level I All + Singapore

Yes Original Yes 75 GARP USD 495; INR 12,950

FRM Level II Mumbai, Delhi Yes Original Yes 60 GARP USD 495,INR 9,950

PRM All + Singapore

Yes Original Yes 135 PRMIA USD 795, INR 20,000

APRM Corporate From 2010 Original Yes 80 PRMIA INR 10,000

Financial Modeling

Mumbai, Delhi, Bangalore

Yes Original NA 50 - INR 18,000

Finance for Lawyers

Mumbai No Original NA 50 - INR 45,000

CFP Mumbai, Delhi Yes Original NA 120 Under Process INR 20,000

Placement Oriented Training

Colleges No Original NA 150 Not Required INR 12,000

*All cities include Mumbai, Delhi, Kolkata, Chennai, Bangalore, Pune and Hyderabad ; ** Singapore class room trainings to commence from

June 2010

Other Pristine Offerings


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Agenda







• Next Seminar

52

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Contact

Contact Phone Email

Unmesha Tawde +91 982 043 2652 [email protected]

Paramdeep Singh +91 989 298 0608 [email protected]

Atul Kumar +91 932 2194 932 [email protected]


fsa tips for cfa preparation by pristine (annotated)

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