Financial statement at the end

I am reading quantitative analysis.

Do you think I can continue with corporate finance and equity before studing financial statement?

what is the proper order?


This is what I’d do:

I would start with Financial Statement Analysis. I would learn it inside and out. I would watch videos, read the book, work the problems, then read the book and work the problems again. I would make sure I knew it forwards and backwards, up one way and down the other.

Then I would study the Corporate Finance and Equity just as you normally would.

Then I would study the Financial Statement Analysis again.

You can do CorpFin and Equity (and even fixed income) before FSA if you like. There isn’t anything all that critical in FSA that you absolutely have to understand first (at least for L1).

However, make sure you have sufficient time to review for FSA, because it’s one of the bigger sections of the exam. Doing the other stuff first is fine, but you still have to put in the time for FSA eventually.


I’m going to disagree with Chad on this one. I think you should study Accounting before moving on to the other stuff. (Especially at Level 2.) How can you use a financial statement for Equity Valuation if you don’t know how to analyze it, or if you don’t know what it means?

I think you’d be okay either way, but I think it’s better to study Accounting before Equity/CorpFin.

The reason is that the equity valuation material and the financial statements material are self-contained units. Basically, they teach the dividend discount model and comp ratios and discounted cash flows. But the discounted cash flows in Level 1 are just given to you… in 90% (maybe 100%) of the cases, you don’t have to derive them from the financial statements. So it’s ok to study them first if you want.

In theory, they could make a hard problem where you are given financial statement information, then asked to construct cash flows and then compute an equity value, but in practice, they will almost never do this at L1. And by exam day, you’ll have covered FSA anyway so you can handle that problem when they throw it at you.

One caveat: Exam study providers may throw these harder questions at you as a way to review and cross-test your knowledge. But that’s a strategy of the exam provider, and not the CFAI.

They also teach that the growth rate is ROE * (1 - dividend payout). One could in theory derive that from FSA information, perhaps using the Dupont model. But again, most of the questions will simply tell you what ROE is and either the dividend payout or the retention ratio and you’re good to go. And on test day, if they throw that kind of question at you, you’ll have already done FSA, so it will be ok.

Level 1 FSA is mostly about understanding the rules for what goes where on a financial statement, how to construct a cash flow statement from a BS and IS, what the many many different ratios are, and then a bunch of PITA things to remember like LIFO/FIFO, Leases, and Deferred Tax Liabilities and Credits. A researcher at a bank or a fund has to know these things in order to build a valuation model, yes, but you don’t need it to show that you understand a dividend discount model, justified price-earnings ratios, etc…