NCFM FUNDAMENTAL ANALYSIS
CHAPTER 1: Fundamental Analysis: An introduction
What is fundamental analysis?
Why is fundamental analysis relevant for investing? – Efficient Market Hypothesis (EMH), Arguments against EMH, Does fundamental analysis work?
Steps in Fundamental Analysis
CHAPTER: 2 Brushing up the Basics
Concept of “Time value of Money”
Interest Rates and Discount Factors – Opportunity cost, Risk-Fr ee Rate, Equity Risk Premium, the Beta, Risk Adjusted Return (Sharpe Ratio)
CHAPTER 3: Understanding Financial Statements
Where can one find financial statements – The Director’s Report, The Auditor’s Report, Financial Statements: Balance Sheet, Income Statements, Schedules and Notes to the Accounts, Cash Flow Statement
Financial Statement Analysis and Forensic Accounting
Comparative and Common-size financial statements
Cash Conversion Cycle
The Satyam case and need for forensic accounting
CHAPTER 4: Valuation Methodologies
Top-Down valuation (EIC Analysis) – Economy, Industry, Company
Discounted Cash Flow (DCF) Models
Dividend Discount Model (DDM)
Free Cash Flow to Firm (FCFF) and Free Cash Flow to Equity (F CFE) based DCF
Some of the parts (SOTP)
Price-to-Earnings (PE) ratio
Price-to-Book value (PB) ratio
EV / EBITDA
Price to Sales (P/S) ratio
Special cases of valuation – IPOs, Financial Services firms, net interest margin (NIM), Firms with negative cash flows, Acquisition valuation, distrConceptual Foundations of Financial Statements.
The objective of financial reporting;
The main assumptions;
Qualitative characteristics of financial reporting;
Elements of Financial Statements: recognition and measurement;
Concepts of capital.
IAS 1 “Presentation of Financial Statements”
Purpose and application of the standard;
Components of financial statements, including Report on Equity;
Confidence in reporting and compliance with IFRSs;
Presentation of Financial Statements.
IAS 7 “Statement of Cash Flows” (CCF)
Purpose and application of the standard. Concepts;
The structure of the Cash Flow Statement;
Classification of business operations with the objective of CFS;
Types of cash flow statement presentation;
A direct method for preparation of cash flow statement;
The indirect method cash flow statement preparation;
Identification of inflows and outflows of cash and cash equivalents provided by the bank’s operations.
IAS 8 “Accounting Policies, Changes in Valuation Calculations and Errors”
Purpose of accounting policies;
Changes in accounting policies – a retrospective approach;
Reflection in the financial statements of changes in accounting; estimates (prospective approach);
Errors in the financial statements and methods of their correction.
Elements of Financial Statements of Credit Institutions.
IAS 32 and 39 “Financial Instruments”
The concept of financial instruments
Identification of financial instruments: financial assets and liabilities derivatives: recognition and rejection of the recognition
Classification of financial instruments;
Valuation of financial instruments: when registering in financial reporting.
Follow-up evaluation: should we expect a mortized cost?
Accounting for impairment of financial assets;
Derecognition of financial instruments;
Forward contracts, swaps,futures;
Non-market interest rates;
Practical applications for banks and other financial institutions;
Recommendations to the disclosure.
IFRS 7 “Financial Instruments: Disclosures”
Profit and loss account;
The balance sheet or balance;
Statement of cash flows;
Statement of changes inequity;
Basic disclosure requirements for financial instruments;
Disclosure of risk management policy;
New approaches to disclosure in accordance with IFRS7 “Financial Instruments: Disclosures”.
IAS 16 “Property”
Criteria and Evaluation;
Recognition and initial assessment;
IAS 38 “Intangible Assets”
Recognition and development cost;
Assessment and reassessment;
IAS 40 “Investment Property”
Classification of property;
The preparation of financial statements and assessment of investment property.
IAS 36 “Impairment of Assets”
The procedure fortesting for impairment;
The causesof impairment;
Definition of cash-generating unit;
Calculation of recoverable amount;
Restoration of impaired assets;
IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”
The criteria for the classification of non-current assets as held for sale;
The Group’s assets for retirement;
Recognition and measurement.
IAS 17 “Leases”
Types of lease -finance/operating lease;
Signs and principles of lease classification;
Reflection of the lease in the financial lessor and lessee;
Reflection of operating leases in the financial statements of the lessor and lessee;
IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”
Reserves – Definition, Recognition and Measurement;
Creation of reserves (reserves for issued loans, other reserves);
Contingent liabilities – the definition and recognition;
Contingent assets – the definition and recognition;
IAS 12 “Income Taxes”
Deferred income taxes- a concept:
Temporary differences: Temporary taxable differences and deductible temporary differences;
Recognition of deferred tax assets and liabilities;
Calculation of the tax base of the asset and liability;
The calculation of deferred taxes on credit operations;
Presentation and disclosure of deferred taxes.
IAS 18 “Revenue”
The conditions for recognizing revenue;
Recognition of interest income.
IAS 19 “Employee Benefits”
Identification of fixed payment of pension plans by the employer groups and plans with defined contribution;
Recognition and measurement of pension plans, defined contribution and defined benefit;
Reflection of pension plans in accounting, financial statements and notes to the accounts.
IFRS 2 “Share-based payments instruments”
The concept of payment based on the equity instruments;
Evaluation of the transaction at fair value;
The difference between the operations, which offer payments using the shares settled in cash and equity instruments;
Disclosure in financial reporting.
Additional Disclosure of Information
IAS 34 “Interim Financial Reporting”
The scope of IAS 34;
Definitions and minimum of the interim reporting;
Information to be included in the notes to the interim financial statements;
The period to provide the interim financial statements;
Disclosure of estimates of the interim financial statements in annual reports, if in the final period of assessment has changed;
Accounting policies for interim reporting;
Seasonal income, non-uniform costs and the use of estimates in interim financial statements.
IFRS 8 “Operating Segments”
Definitions of industry and geographical segments;
Primary and secondary format for segment information;
Financial performance, requiring disclosure in respect of primary segment format;
Information about the format of the secondary;
Criteria for selection of segments for presentation in financial statements;
The accounting policies of the segment.
IAS 33 “Earnings per Share”
Calculation of earnings per share in accordance with IAS 33;
Earnings per share in the event of the year preferential issue or stock split;
Calculation for the placement of shares at a premium and with the release of rights;
The calculation of diluted earnings per share and issue convertible debtor preferred stock;
Issuance of stock options and warrants on shares;
Identify the circumstances under which an effect of increasing earnings per share;
Conversion of comparative data on earnings per share;
Additional disclosures about earnings per share.
IAS 10 “Events after the Balance Sheet Date”
Definition of subsequent events- corrective and non-adjusting (the algorithm to reflect events after the reporting date);
Recognition of adjusting events;
Inclusion in the reporting of non-adjusting events;
Disclosure of information about events after the reporting date.
IAS 21 “Effects of Changes in Foreign Exchange Rates”
Identification of the functional currency;
Assessment at initial recognition of foreign currency transactions;
Recognition of exchange differences;
Select the presentation currency;
How to convert statements into the presentation currency, the current and historical.
IAS 24 “Disclosure of Information of Related Party”
The purpose and scope of thestandard;
Criteria for determining related parties;
The disclosure requirements for related party;
An example disclosure of information of related party.
The Financial Statements of Associated Companies and Joint Ventures
IFRS 3 “Business Combinations”
Identification of acquirer;
Identification of the date of purchase;
Determining the value of combining;
Average cost of the combination to the identifiable assets, liabilities and contingent liabilities;
Determining the amount of goodwill and minority interest;
Basic requirements for disclosure.
IAS 27 “Consolidated and Separate Financial Statements”
Definition of subsidiaries;
Identification of associates and joint ventures;
Presentation of the consolidated financial statements;
The procedure and method of consolidation;
Reflection of investments in subsidiaries, associates and jointly controlled entities in the separate financial statements (IAS 28, IAS31);
Basic requirements for disclosure.essed companies