FSA tips for CFA Preparation by Pristine (Annotated)

www.edupristine.com

CFA Level I
Financial 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

© Neev Knowledge Management – Pristine 2 www.edupristine.com

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

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

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 Pristine
Classroom/ Online delivery
(synchronous and
Founded with an aim asynchronous) – To increase
of creating world reach and improve efficiency of
class professionals in learning. Conducted 15+
the area of finance – batches with over 300 hours of
particularly risk recorded content
management and
Testimonial - 53% of the students join us on the investment banking
basis of referral is a testimonial of the effective Effective training methodologies to improve the performance
training methodologies of the students and enhance the employability


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Key Authorization Not for Sale

CFA Institute (2010-11)
GARP (2007-10)
Authorized Training provider – CFA
Authorized Training provider -FRM
Pristine is now the authorized training provider
Largest player in India in the area of risk
for CFA Exam trainings . Pristine is largest
management training. Trained 1000+ students
training provider for CFA in India with presence
in risk management
across seven major cities.

PRMIA (2009-10)
FPSB India (2010-11) Authorized Training provider – PRM/ APRM
Authorized Training provider -CFP Sole authorized training for PRM Training in
An authorized Education Provider for India. Largest player in India in the area of risk
Chartered Financial Planner Charter. management training. Trained 1000+ students
in risk management

© Neev Knowledge Management – Pristine www.edupristine.com

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Key Associations* Not for Sale

Bank Of America J. P. Morgan (2010) Mizuho (2010)
Continuum Solutions (2010) Financial Modeling in Excel Financial Modeling in Excel
Financial Modeling in Excel The Real Assets Group were trained in Bankers were using excel models that
Associates were trained on valuation and Excel for infrastructure and real-estate they could not understand. Conducted
mergers and acquisitions modeling financial modeling in Excel trainings to
bridge the gap

Franklin Templeton Credit-Suisse India (2009) HSBC (2008)
CFA (2010) Risk Management and Quant. Analysis Risk Management and Quant. Analysis
Students were facing a gap in the IT Professionals of Credit-Suisse India New joinees in HSBC had a gap in
overall understanding of finance were trained on risk management. knowledge of Risk Management and
topics like corporate finance, FSA and quantitative skills. Conducted trainings
valuation. Provided training for over (On campus) to bridge the gap
100 hours to bridge the gap

*Indicative List


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…Key Associations Not for Sale

FMS Delhi (2010) IIM Calcutta (2010) BITS Pilani (2009)
Financial Modeling in Excel Financial Modeling in Excel Workshops on Basics of Finance
Final Year MBA students of Faculty of Students about to go for internships and
Management Studies, Delhi University Most of the students desire a career
join jobs found a gap in their grasp of
were trained in financial modeling so as knowledge of excel for financial in finance. Conducted training for
to prepare them better for a job in modeling. Conducted training for 75+ 350+ students with an average rating
finance. students with an average rating of 4.5+ of 4.5+

NISM (2008)
Derivatives workshop for Hedging
IIT Delhi (2009) Sydneham College (2009)
Corporate finance Corporate in Ludhiana incurred huge
Financial Modeling in Excel
losses because of derivative trades
Students get placed in finance Students about to join jobs found a (for hedging). Conducted trainings for
companies (UBS, GS, MS, etc) with gap in their grasp of excel for financial directors and CFOs for better
no understanding of the subject/ Job modeling. Conducted 40+ hours of understanding of derivative products
Profile. Conducted workshop to training and helped students be ready
bridge the gap for job


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Trainer
Paramdeep Singh, Director and Faculty, Pristine

• 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


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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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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

Atul,atul@eneev.com +91-93221 94932

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Fees Structure Levels I - Deadlines

by 22 September by 16 February by 16 March

Program Enrollment
$405 $405 $490
(new Level I only)

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 the
curriculum 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 cost
will 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

Assets • Economic resources of a company

Liabilities • Creditor’s claim on the company’s resources

Owner’s Equity • Residual claim on the resources

Revenue • Inflows of economic resources to the company

Expenses • Outflows of economic resources or increases in liabilities


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© Neev Knowledge Management – Pristine Careers 15 www.edupristine.com

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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


Introduction to Income Statement

EBITDA EBITA Dep.

Non Cash
Expenses
Revenue

Wages

material
Cost of
Overhead Goods Sold

Gross Profit Depreciation

Wages

Sales
SG&A
EBITA Marketing
Amortization
Operating Profit (EBIT)
Interest
Profit before tax
Income
Tax Taxes
Deferred
Net income Taxes
Net
Income
Production Suppliers Employees/ Non-Cash Support Staff Sales Advertising Non-Cash Debt Govt. Non-Cash Equity
Employees Suppliers Investors Investors

© Neev Knowledge Management – Pristine 20 www.pristinecareers.com

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

Revenue = $50 *2 = $100

Wages

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

Gross Profit = 100-40 = $ 60 Depreciation

Wages

Sales
SG&A = $0.4*50
Marketing = $20
Amortization

Interest
Profit before tax = 60 – 20 = $ 40
Income
Tax Taxes =
Deferred
Net income = 40 -14 = $ 26 $ 14
Taxes
Net
Income
Production Suppliers Employees/ Non-Cash Support Staff Sales Advertising Non-Cash Debt Govt. Non-Cash Equity
Employees Suppliers Investors Investors

© Neev Knowledge Management – Pristine 21 www.pristinecareers.com

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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 that
comprise 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 of
time.


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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

Payment
Contract Consultant Hired Work received
Awarded Completed

Recognition of revenue in Cash
Accounting

23
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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)

Payment
Contract Work Completed received
Awarded

Cash Paid to
Consultant

Consultant Hired Recognition of revenue in Accrual
method

24
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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

Payment
Contract Work Completed received
Awarded

Cash Paid to
Consultant

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

25
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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 which
the 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

Income Ratios Balance Sheet Ratios Mixed Ratios

Profitability Ratios Solvency Ratios Activity Ratios Debt Ratios Market Ratios


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Profitability Ratios

Gross Pr ofit Net Sales − COGS
Gross Pr ofit M arg in = =
Net Sales Net Sales

Net Pr ofit
Net Pr ofit M arg in =
Net Sales

Net Income
RoE =
Average Shareholder ' s Equity

Net Income
RoA =
Total Assets

EBIT * (1 − tax)
RoC =
Invested Capital


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Agenda
• Next Seminar


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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 and
leverage is 0.7. The return on equity for Company ABC is closest to
A. 14.52%
B. 12.94%
C. 11.43%

RoE = NPM * TAT * Leverage = 15.4% *1.2 * 0.7 = 12.94%


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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

www.edupristine.com

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About School for CFA Prep

• Extensive 100 Hours coverage
• 16 days 5 hrs of regular classes

• 3 days 5 hrs of revision classes
School for CFA Prep is • 2 Mock tests

a 100 Hrs extensive training program* • Extensive Question Bank to

that can enable you = •
prepare and Practice

2 Hrs of one-to-one doubt
to prepare for and crack CFA Level I Exam
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
School for CFA Prep is
• Complete Slide Pack
a 100 Hrs extensive training program*

that can enable you = •

•
Each Session followed by Quiz

Adaptive feedback based on Quiz
to prepare for and crack CFA Level I Exam • Mock tests and feedback

• Individual doubt solving session

• CFA Visualized Formula Charts

• Summarized Recordings for
revision

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Tentative Schedule - Feb

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
* Indicative list – Subject to Change

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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
Alternative Investments +
17/Apr/11 Sun CFA-Level-I 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

www.edupristine.com

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Cost of the Program

USD 995 USD 795
For individual registrations For participants joining in groups of 5 or more

www.edupristine.com

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Contact Details

Questions & Doubts?

Please e-mail me at paramdeep@edupristine.com

or visit http://www.edupristine.com

or call +91 989 298 0608

www.edupristine.com

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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 - pristinecareers@eneev.com
– 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 - pristinecareers@eneev.com


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Other Pristine Offerings
Course Classroom Online Content Crash Hours of Accreditation Price
Trainings Trainings Course/ Training
Mock Test
CFA Level I All* + Yes Original Yes 100 Under Process USD 1000;
Singapore** 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 + Yes Original Yes 75 GARP USD 495;
Singapore INR 12,950
FRM Level II Mumbai, Delhi Yes Original Yes 60 GARP USD 495,
INR 9,950
PRM All + Yes Original Yes 135 PRMIA USD 795,
Singapore INR 20,000
APRM Corporate From 2010 Original Yes 80 PRMIA INR 10,000
Financial Mumbai, Delhi, Yes Original NA 50 - INR 18,000
Modeling Bangalore
Finance for Mumbai No Original NA 50 - INR 45,000
Lawyers
CFP Mumbai, Delhi Yes Original NA 120 Under Process INR 20,000

Placement Colleges No Original NA 150 Not Required INR 12,000
Oriented
Training

*All cities include Mumbai, Delhi, Kolkata, Chennai, Bangalore, Pune and Hyderabad ; ** Singapore class room trainings to commence from
© Neev Knowledge Management – Pristine June 2010 www.edupristine.com

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Agenda
• Next Seminar


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Contact

Contact Phone Email
Unmesha Tawde +91 982 043 2652 unmesha@edupristine.com
Paramdeep Singh +91 989 298 0608 paramdeep@edupristine.com
Atul Kumar +91 932 2194 932 atul@edupristine.com


FSA tips for CFA Preparation by Pristine (Annotated)

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FSA tips for CFA Preparation by Pristine (Annotated)