Cfa Level 1 Quicksheet

Front 1

Net Realizable Value

Back 1

(IFRS) expected sales price less the estimated selling and completion costs; if net realizable value < inventory, inventory is written down and loss is recognized on IS.

Front 2

Lower of Cost or Market (Inventory)

Back 2

(GAAP) = replacement cost, but cannot be greater than net realizable value or less than NRV minus a normal profit margin

Front 3

R&D Costs - Expensed or Capitalized (IFRS and GAAP)

Back 3

IFRS - Research Costs are expensed and Development Costs are capitalized
GAAP - Both are Expensed

Front 4

Coefficient of Variation

Back 4

(std dev) / (mean)

Front 5

Sharpe Ratio

Back 5

(Rport - Rfree) / (SIGMAport)

Front 6

correlation

Back 6

COVa,b / SIGMAa / SIGMAb

Front 7

Variance of 2 asset portfolio

Back 7

Wa^2*SIGMAa^2 + Wb^2*SIGMAb^2 +2*Wa*Wb*COVa,b

Front 8

standard error of the sample mean

Back 8

std deviation of distribution of sample mean

SIGMA / sqrt(n)

Front 9

Confidence intervals

Back 9

avg(x) +/- Z * SIGMA / sqrt(n)

two tail, 90%: Z=1.645
two tail, 95%: Z=1.96

Front 10

Null/Alt Hypotheses Errors

Type I Error
Type II Error

Back 10

Type I: rejection of null hyp when it is true

Type II: failure to reject null hyp when it is false

Front 11

Hypothesis Test

When to use t-stat, chi-square stat, F-stat

Back 11

t-stat: population means

chi-sq stat: tests of a single population's variance

f-stat: to compare two populations' variances

Front 12

Technical Analysis

Reversal Patterns, Price-based Indicators, Sentiment Indicators, Flow of Funds

Back 12

Reversal pattern: head and shoulders, double/triple top or bottom
Price-Based: moving avg's, bollinger bands, momentum
Sentiment: opinion calls, put/call ratios, VIX
Flow of Funds: margin debt, mutual fund cash posit

Front 13

Monopolistic competition

Back 13

Many firms, some pricing power, differentiated producs with large ad expense

Front 14

oligopoly

Back 14

few firms; significant pricing power

Front 15

Savings, Investment, Fiscal/Trade Balance

Back 15

G - T = (S - I) - (X - M)

Front 16

Exchange, Velocity of Money

relate money supply, velocity, price level and GDP

Back 16

MV = PY

Front 17

SR vs LR aggregate Supply Factors

Back 17

SR affected by LR AND....

input prices, expectations for output prices, taxes and subsidies, exchange rates

Front 18

Money Multiplier

Back 18

1 / reserve requirement

Front 19

Fiscal Multiplier

Back 19

1 / (1 - MPC * (1-T) )

Front 20

No-Arbitrage Forward FX Rate

Back 20

forward (d/f) / spot (d/f) = (1 + Rd) / (1 + Rf)

where f= foreign
and d = domestic

Front 21

WACC

Back 21

WACC = Wd * Kd*(1-T) + Wps*Kps + Wceq*Keq

Front 22

Cost of Debt/Preferred Capital

Back 22

Kd = Dd / P

Front 23

Cost of Equity (growth rate)

Back 23

Keq = (D1 / P0) + g

Front 24

Cost of Equity (CAPM)

Back 24

Keq = RFR + Beta*(Rmkt - RFR)

Front 25

Pure Play

- Delevered Asset Beta
- Relevered project beta

Back 25

Delevered Asset Beta (for Comp Firm)
Basset = Bequity * 1/(1 + D/E * (1-T) )

Relevered Proj Beta (for Subject Firm)
Bproj = Basset * (1 + D/E * (1-T) )

Front 26

Total Leverage

Operating Leverage

Financial Leverage

Back 26

Total: %ChangeNetIncome / $ChangeSales

Operating: %ChangeEBIT / %ChangeSales

Fin: %ChangeNetIncome / %ChangeEBIT

Front 27

How will Shrae repurchases affect EPS and Book Value per Share?

Back 27

EPS: If cost of Debt < earnings yield: EPS increase

BVPS: If stock price < BVPS, BVPS increase

Front 28

binomial distribution

Prob of x success in n trails
expected value
variance

Back 28

P(X = x) = nCx * p^x * (1-p)^(n-x)

E(X) = np
Var of X = np*(1-p)

Front 29

t-statistic

Back 29

for testing mean

t = (sampleAvg - nullHypAvg) / stdErrOfSample

stErrOfSample = sampleStdDev / sqrt(sampleAvg)

Front 30

chi-squared statistic

Back 30

for testing variance

chi-sq = (n-1) * sampleVariance / nullHypVariance

distr not centered around 0, so need to find two critical values

Front 31

F-statistic

Back 31

comparing equality of variances

F = sampleVariance1 / sampleVariance2
numerator df and denominator df

Front 32

margin leverage ratio

Back 32

LevRatio = valueAsset / EquityPosition

LevRatio of 2 -> 10% increase in asset price results in a 20% increase in investor's equity amt

Front 33

margin call price

Back 33

Margin Call P = Pinitial * (1 - MargInitial) / (1 - MargMaintenance)

Front 34

Stop Loss Order

Stop Buy

Back 34

stoploss - used to prevent losses; if position drops to a certain price, sell

stop buy - buy if stock increases past pt X

Front 35

Adjust a Price-Weighted Index for Stock Split

Back 35

use split stock price, and find the denominator such that the the same index price is met

all of this must be done as of start of index

Front 36

Revenue Recognition Methods

Back 36

Percentage of Completion - recognize % of project revenue/expenses

Completed Contract - only recognize when completed

Installment Sales - recognize revenue as cash comes in. record profit as gross margin * rev recognized

Cost Recovery - recognize costs as revenues come in. No profit recorded until all costs are covered. (common for installment when recoverability not certain or sale value hard to determine)

Front 37

Free Cash Flow (FCF)

Back 37

FCF = CFO - CapEx

FCF = NetIncome + DeprAmort + Interest*(1-T) - deltaNWC - CapEx

Front 38

Turnovers!

Receivable
Inventory
Payables

Back 38

Rec Turn = Sales / Avg Accts Receivable

Inv Turn = COGS / Avg Inventory

Payab Turn = Purchases / Avg Accts Payable

Front 39

Cash Conv Cycle

Back 39

CCC = Days of Sales Outstanding + Days Inventory - Days Payable

Front 40

Return on Assets (= Return on Total Capital)

Back 40

EBIT / Avg Total Capital

Front 41

Total Debt Ratio

Back 41

Total debt Ratio = debt / Assets

Front 42

Interest Coverage

Fixed Charge Coverage

Back 42

Interest Coverage = EBIT / Interest

Fixed Charge Cov = (EBIT + Leasing Payments) / (Interest + Leasing Payments)

Front 43

Growth Rate (g)

in terms of ROE...

Back 43

g = RetentionRate * ROE

RetentionRate = 1 - Dividends Declared / OperatingIncomeAfterTaxes

Front 44

Dupont Analysis... Short
get ROE

Back 44

ROE = [NI / Sales] * [Sales / Assets] * [Assets / Equity]

= [netProfitMarg] * [Asset Turnover] * [Equity Mult]

Front 45

Dupont Analysis... Long
get ROE

Back 45

ROE = TaxBurden * IntBurden * EBITMarg * Rev/AvgAssets * AvgAssets/AvgEquity

= [NI/EBT] * [EBT/EBIT] * [EBIT/Rev] * Rev/AvgAssets * AvgAssets/AvgEquity

Front 46

AFS vs For Trading Difference on IS

Back 46

both are marked at fair value, and div/int and realized gains/loss hit inc statement

AFS - unrealized gains/loss are marked as "other comprehensive income"

Front 47

Double Declining Balance

Back 47

DeprExp = (2/life) * (cost - accumDepr)

stop when Book Value = salvage value

Front 48

Deferred Taxes

Back 48

When Taxable Income (Tax Return) != Pretax Income (IS) due to TEMPORARY differences

TaxExpense = TaxPayable + deltaDTL - deltaDTA

Front 49

Bond Interest Expense

Back 49

IntExp = bookValue (at PeriodStart) * MarketInterest (at BondIssuance)

the discount/premium gets amortized over life of bond

Front 50

Investment Policy Statement - Invesment Objectives

Back 50

Investment Objectives
- Return Objectives
- Risk Tolerance

Front 51

Investment Policy Statement - Constraints

Back 51

Constraints
- Liquidity Needs
- Time Horizon
- Tax concerns
- Legal/Regulatory Factors
- Unique needs and prefs

Front 52

GIPS

Back 52

Compliance Statement (applied to whole firm)

Sections:
- fundamentals of Compliance
- input data
- calculation methodology
- composite construction
- disclosures
- presentation and reporting
- real estate
- private equity
- wrap fee / SMAs

Front 53

Constant Growth Eqty Valuation

Back 53

V_0 = D_1 / (CostEq - g)

- as diff btwn CostEq and g widens, stock price falls

Front 54

Earnings Multiplier Equity Valuation

Back 54

P_0 / E_1 = payout ratio / (CostEq - g)