“Prove to us that you know the basics of how to analyze companies” Note: I have not analyzed companies before. So how should I get prepared? I hope they dont sit me in front of a comp because I dont know much about excel. Please list qualitative info that can help me prepare. Thanks1
Learn how to use an abacus and write on stone tablets.
I guess a few things ring out as possible talking points. 1) Ratio analysis and multiples 2)methods like DDM, DCF 3)looking at Fin Stmts for pros/cons/trends
tvPM Wrote: ------------------------------------------------------- > I guess a few things ring out as possible talking > points. > 1) Ratio analysis and multiples > 2)methods like DDM, DCF > 3)looking at Fin Stmts for pros/cons/trends Tvpm, I appreciate your educated and useful response. When would qualitative top down factors come into play when analyzing a security? such as meeting with managers, industry trends, etc…
IH8FSA Wrote: ------------------------------------------------------- > When would qualitative top down factors come into > play when analyzing a security? such as meeting > with managers, industry trends, etc… Which sector are you supposed to analyze? For example, if you want to track down industry drivers in the tech industry, you would check IDC (doubt you have access to this). Other industries have similar websites or publications. In terms of management, forget what they say. Most of it is garbage and overly optimistic anyway. Of course you should listen and ask clarifying questions, but your investment decision should be based on the numbers and your judgment, not what management tells you (there are obvious conflicts of interest here). There is another thread floating around on AF right now about analyzing companies / ER. Try to track down a note and see how it is done. “Prove to us that you know the basics of how to analyze companies” is so broad that it’s not really a useful question, but nonetheless, it probably has mostly to do with reading financial statements, building earnings models, analyzing the inputs and outputs of the model, and then using the outputs to perform relative valuation. I.e., what does the PE multiple tell you and how did you get to it. What level candidate are you? If you have taken and/or passed L2, you should be in fine shape for this sort of question.
level 3 awaiting results. i know about most of the ratios etc, its the “analyzing the inputs and outputs of the model, and then using the outputs to perform relative valuation” that i have no clue about
IH8FSA Wrote: ------------------------------------------------------- > level 3 awaiting results. i know about most of > the ratios etc, its the “analyzing the inputs and > outputs of the model, and then using the outputs > to perform relative valuation” that i have no clue > about Do you know your way around an income statement? They want to know that you understand how to get to EPS and what goes into that process. How are you thinking about top line growth? Are margins going to expand or contract? Why? Do you expect any revenue mix shifts to occur? What about share count? Increasing or decreasing? Of course this is a gross oversimplification, but those are the sort of things you should be able to talk about. Again, if you just work through a model or two prior to your interview and fully understand what you are looking at, you should have no problems.
I might be too focused on the numbers here. You should be able to talk about things like the business cycle and industry factors as well. Is it a new industry or mature? How competitive? Barriers to entry? These sorts of things will influence the inputs of your model (i.e., a company in a mature industry should probably trade at a commodity multiple of ~12-14x and have fairly average margins).
IH8FSA Wrote: ------------------------------------------------------- > “Prove to us that you know the basics of how to > analyze companies” > > I hope they dont sit me in front of a comp because > I dont know much about excel. > You are an L3 candidate and you don’t know basic valuation methods or how to use excel? Is this post a joke?
engineer2finance Wrote: ------------------------------------------------------- > IH8FSA Wrote: > -------------------------------------------------- > ----- > > “Prove to us that you know the basics of how to > > analyze companies” > > > > I hope they dont sit me in front of a comp > because > > I dont know much about excel. > > > > You are an L3 candidate and you don’t know basic > valuation methods or how to use excel? Is this > post a joke? I must have missed the study session that taught us how to build financial models in excel.
IH8FSA Wrote: ------------------------------------------------------- > engineer2finance Wrote: > -------------------------------------------------- > ----- > > IH8FSA Wrote: > > > -------------------------------------------------- > > > ----- > > > “Prove to us that you know the basics of how > to > > > analyze companies” > > > > > > I hope they dont sit me in front of a comp > > because > > > I dont know much about excel. > > > > > > > You are an L3 candidate and you don’t know > basic > > valuation methods or how to use excel? Is this > > post a joke? > > > > I must have missed the study session that taught > us how to build financial models in excel. Probably. In addition to the entire Equity Analysis portion of L2.
buy this book, at least you’ll have an idea what modeling/forecasting is… http://www.amazon.com/Financial-Modeling-2nd-Simon-Benninga/dp/0262024829
lol, damn I feel dumb. Does anyone know where I could obtain a basic financial model for analyzing a company? either a website or sample emailed to me goleafs1980@hotmail.com
Note to IH8FSA…you will have to use FSA to analyze the company. 
how can u be level 3 candidate and not know Valuation and FSA?
pacmandefense Wrote: ------------------------------------------------------- > how can u be level 3 candidate and not know > Valuation and FSA? And people wonder why the value of the designation has gone to sh!t. We had to fire a guy because after we hired him it became apparent he had misrepresented his experience to us and to CFAI but he had obviously passed the tests as he had the designation but he couldn’t do crap. He didn’t understand valuation or how to find things in financial statements and my 12 year old niece was more proficient in Excel. We learned our lesson and now we will make every take a live test during the interview process.
I think you guys are being too hard on him. The CFA teaches the theory, which I am sure he knows or he would not have passed the exams. It does not teach you the application of the theory, though, which you can basically only get from hands on experience. If he has not worked in the industry, I doubt he is much, if at all, worse off than your typical MBA grad. Maybe I am giving him too much credit, but I think his question had more to do with putting the valuation and FSA concepts he knows into practice, rather than not knowing anything about those topics.
I totally agree with you, Bromion, and was just writing this up. IH8FSA, I don’t think you should feel dumb. I think the program is a little weak in so far as real world applicable content. Yes, it tells you how to figure out what the value of a bond is, well so does bloomberg. How about how to look at teleco vs utility names? It doesnt touch on excel modeling (i too couldnt model worth anything coming out of the program, so I am with you), and I felt that the equity content was pretty generic and theoretical. I am no equity analyst, but I have to guess that you guys who are don’t spend your days building CAPM models. You talk to management, you build real earnings models, make projections, you know what questions to ask. Obviously, the program cant teach you all of this, as it has to be learned over time, but that is what makes a good analysis. Expecting someone to come out of this very broad test knowing how to assign a value to a stock isn’t realistic (sure, throw a p/e on there and anyone can do it, but anything more complex). Its one thing to say that a company can grow at GDP and you should push margins around. Its another trying to apply that when you dont work at a large shop, or have had a formal training program, and have no one to ask questions of. Ive certainly figured a lot of this out, but with no thanks to the curriculum. As for the value of the charter, bear in mind, its not an equity analyst charter. There are plenty of investors out there who trade in other securities that do not need to model out 5 yrs in EPS, that dont need a huge expertise in financial statements (though, that list is obviously smaller), etc. I didnt expect to come out pro in those fields, and I didnt. Its also not an excel charter. Just my two cents. It is a broad curriculum that doesn’t give anyone the specific skills to do anything, really. It gives you building blocks of theory and very little more.
RAwannabeCFA Wrote: ------------------------------------------------------- > pacmandefense Wrote: > -------------------------------------------------- > ----- > > how can u be level 3 candidate and not know > > Valuation and FSA? > > > And people wonder why the value of the designation > has gone to sh!t. > > We had to fire a guy because after we hired him it > became apparent he had misrepresented his > experience to us and to CFAI but he had obviously > passed the tests as he had the designation but he > couldn’t do crap. He didn’t understand valuation > or how to find things in financial statements and > my 12 year old niece was more proficient in > Excel. > > We learned our lesson and now we will make every > take a live test during the interview process. 1 - Who hires someone because he/she has a charter? It’s just a piece of paper that doesn’t mean much unless it’s backed by some achievement in the real world. 2 - He didn’t say he has the charter, he said he passed two tests, and probably does not have the experience required since that’s his first interview. 3 - I agree that the tests are relatively easy, and anyone can eventually pass, but it’s still an indication that when he puts his mind on something he can get the job done. Which can’t be said about a lot of people. 4 - Finally, there is no relationship between having the Charter and computer literacy. You can finish the whole thing without even knowing what’s an email.
I think in order to become a good analyst, you need to learn how to think about businesses. There are certain elements of the job that are more tactical and perfunctory in nature, such as financial modeling. However, there’s also an intuitive part of the job in order to be able to identify attractive businesses, and this is something that all good investors should have. The intuitive part of the job is less technical, but there are certain things that you should look at when you think about analyzing companies. Various frameworks like SWOT and Porter’s Five Forces are very important, and you need to learn not only what they are but also how to apply them. Another book that I really enjoyed reading was “Memo to the CEO: Lessons from Private Equity Any Company Can Use” by Orit Gadiesh (Chairman of Bain & Co.). I had written a more comprehensive review on several private equity books which you can find here: http://www.analystforum.com/phorums/read.php?1,783090,783603 The important thing about Gadiesh’s book is that the lessons taught in that book are very relevant to analyzing public companies as well, and speaks to the transferability of the private equity investor skill set. As I wrote in the thread above, it’s a very quick read and is extremely practical. It obviously has its roots in the private equity investment criteria, but you can definitely see how the fundamental qualities stressed in the book are also important traits to assess in public companies. As someone who used to cover public companies but recently moved to private equity, I think it’s very relevant and useful in helping someone become a “smarter investor” (as well as a better executor, for those of you that aspire to be C-level personnel sometime down the line.) We all know that the CFA program equips you with better tools to think about valuation analysis. However, for the person who’s trying to learn how to analyze companies, in order to learn the job of the analyst, you have to think like an analyst; and in order to be a good analyst, you have to learn how to invest. Even if you don’t have your own money to put to work, it helps to read books like the one I mentioned above because it really teaches you the types of issues to think about when you’re looking at businesses, and when and why you pay attention to certain numbers rather than others. At the end of the day, it all comes down to experience…and if you can’t get the experience yourself, read and learn from the people that have it.