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Study Session 9: Financial Reporting and Analysis: Financial Reporting Quality and Financial Statement Analysis

Conservative Bias - benefits

Hi all, 

(I have checked and did not find a post on this topic)

How should I understand one of the benefits of conservative bias as 

“…in protecting the interests of those who have less complete information than company management, such as buyers of the company’s debt.”?

How to get to Effective Yield from ROA

If I have a loan with an ROA of .90%, I think i can multiply by 10 to get an approximate yield or ~9%.

Can anyone remind me how to get to Effective Yield given an ROA level?

Thanks 

MV/BV ratio. The higher the better or vice a versa ?

Hi all, 

I got confused why the MV/BV ratio with the lower quotient is deemed to have a better value. Below is the excerpt from Reading 33 (CFA Institute book). 

Marseglia computes the MV/BV for the companies as follows:

SCHW $21,871/$5,073 = 4.3

AMTD $11,525/$3,551 = 3.2

Diluted EPS

The Fischer Company had net income of $1,500,000. Fischer paid preferred dividends of $5 on each of the 100,000 preferred shares. There are 1 million Fischer common shares outstanding. In addition to the common and preferred stock, Fischer has $25 million of 4% bonds outstanding. The face value of each bond is $1,000. Each bond is convertible into 40 common shares. If Fischer’s tax rate is 40%, determine its basic and diluted earnings per share (EPS)?

I need help calculating diluted EPS.  Thanks in advance.

IFRS vs GAAP: outdated question?

This was the answer for a question on IFRS vs GAAP. Part in bold is the section I am not understanding:

Available for sale security

In the beginning of FRA they said that available for sale unrealized gains and losses are a part of other comprehensive income; now I am reading that under IFRS the unrealized g/l due to rate fluctuations go into the IS….. this is wrong, right? And how about GAAP? where do they go. 

Thank you in advance

Value of a Company vs its Equity

“Projections of future financial performance over multiple periods are needed in valuation models that estimate the value of a company or its equity”

(Institute 699)

Institute, CFA. 2016 CFA Level I Volume 3 Financial Reporting and Analysis. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Market-Based Valuation

What is market-based valuation? The internet has failed me with this one. The CFA books use this term but don’t explain it.

Financial Leverage

Financial Leverage = Total Debt/ Shareholders Equity or  Avg Total Assets/Avg Total Equity. Which one to use and what’s the difference ? 

Amortization of Bond Discount or Premium and Income Statement

  • Is the Amortization of Bond Discount or Premium ever shown as a separate line items on the income statement?
  • Or, It is always aggregated as the Interest Expense?
  • If interest expense is ever show as two components: Coupon and Amortization can you give me a link to an example?

Thanks

xibmaverick