StickyKurtosis
Kurtosis refers to the measurement of the degree to which a given distribution is more or less ‘peaked’ relative to the normal distribution. The concept of kurtosis is very useful in decision-making. In this regard, we have 3 categories of…
CFA LEVEL II – Ethical And Professional Standards
Learning Module 1: Code of Ethics and Standards of Professional Conduct LOS a: Describe the structure of the CFA Institute Professional Conduct Program (PCP) and the disciplinary review process used to enforce the Code and Standards. LOS b: Explain the…
Arbitrage Pricing Theory and Multi-Factor Equity Models
The Arbitrage Pricing Theory Framework The CAPM reflects a single source of systematic risk: variation in overall stock market returns. However, empirical research has consistently shown that market risk is not the only source of risk recognized by investors. A…
Using CAPM and the Market Model to Estimate Required Return on Equity
The Critical Role Of Discount Rates In Equity Valuation A fundamental challenge in equity valuation is selecting an appropriate discount rate for converting projected future cash flows into present values. Earlier learning modules often provided this discount rate as a…
Industry Analysis Using Porter’s Five Forces and PESTLE
Porter’s Five Forces and the PESTLE Framework Porter’s Five Forces framework explains why an industry’s return on capital sits above, at, or below its cost of capital. When the five forces collectively press hard on industry participants, competition drives returns…
Industry Size, Growth, Profitability, and Market Share Trends
Estimating Industry Size The top-down approach starts with an aggregate figure, often published by a government statistical agency or a third-party research firm, that measures total revenue across the entire industry. This works well when the industry contains many small…
Industry Classification Methods and Company Grouping
What Defines an Industry An industry consists of firms that a customer would view as offering comparable products or services. This customer-facing definition matters because firms grouped this way tend to share similar competitive pressures and value drivers, which makes…
Industry and Competitive Analysis Process
Why Industry and Competitive Analysis Matters A valuation model is only as credible as the assumptions feeding it. Discounted cash flow, relative valuation, and residual income models all rest on forecasts of revenue growth, margins, and reinvestment needs. Industry and…
Estimating Equity Value from Financial Statement Forecast Models
1. The Valuation Process A complete equity valuation using a disaggregated model follows six steps: 2. Free Cash Flow Calculation from Forecasted Statements FCFF Calculation: $$ \begin{align*}\text{NOPAT} & = [\text{Revenue} – \text{COGS} – \text{SG&A} – \text{D&A}] \times (1 – t)…
Constructing Equity Valuation Models Based on Company Characteristics
Company Life-Cycle Stage and Model Selection A company’s stage of development determines the appropriate valuation approach, key metrics, value drivers, and data availability. Start-Up Phase Characteristics: Valuation Approach: Start-up valuations forgo near-term cash flow forecasts and focus primarily on the…
Financial Statement Forecast Models in Equity Valuation
This module forecasts financial statements and derives cash flows from that forecast, letting an analyst assume separate drivers for revenue, expenses, investment, and financing rather than one overall growth rate. Valuations built this way are called disaggregated valuation models. FCFF…
