About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
4.10 Financial Analysis Techniques Explained

4.10 Financial Analysis Techniques - 4.10 Financial Analysis Techniques - 4.10 Financial Analysis Techniques Explained

Key Concepts

Ratio Analysis

Ratio Analysis involves calculating and interpreting financial ratios to evaluate a company's performance, liquidity, profitability, and solvency. Common ratios include the current ratio, return on equity (ROE), and debt-to-equity ratio.

Example: A current ratio of 2.5 indicates that a company has $2.50 in current assets for every $1 of current liabilities, suggesting strong short-term liquidity.

Trend Analysis

Trend Analysis, also known as horizontal analysis, involves comparing financial data over a series of reporting periods. This method helps in identifying trends and changes in financial performance and position. It is typically expressed as a percentage change from the base year.

Example: If a company's revenue was $100 million in 2020 and $120 million in 2021, the trend analysis would show a 20% increase in revenue.

Common-Size Analysis

Common-Size Analysis involves expressing each item on a financial statement as a percentage of a base figure within the statement. For the income statement, this base figure is usually total revenue, and for the balance sheet, it is total assets.

Example: If a company's cost of goods sold (COGS) is $60 million and its total revenue is $100 million, the common-size analysis would show COGS as 60% of total revenue.

DuPont Analysis

DuPont Analysis is a method used to break down the return on equity (ROE) into its components to understand the factors contributing to a company's profitability. It decomposes ROE into three parts: net profit margin, asset turnover, and financial leverage.

Example: A company's ROE can be broken down as follows: ROE = (Net Profit Margin) * (Asset Turnover) * (Equity Multiplier). If a company has a net profit margin of 10%, an asset turnover of 2, and an equity multiplier of 1.5, its ROE would be 30%.

Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) Analysis is a valuation method used to estimate the attractiveness of an investment opportunity. It involves forecasting future cash flows and discounting them to their present value using a required rate of return.

Example: If a company is expected to generate $10 million in cash flow each year for the next five years, and the required rate of return is 10%, the DCF analysis would discount each year's cash flow to its present value and sum them up to determine the company's intrinsic value.

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