Alternative Financial Reporting System and Developments in Financial Reporting Standards
The goal of global convergence has been advanced by adopting IFRS in many countries outside the US as the required financial reporting standard. However, several differences exist between US GAAP and IFRS that affect how companies report their financial statement….
Importance of Regulatory Filings, Financial Statement Notes, and Supplementary Information
Regulatory Authorities Publicly traded issuers are required to prepare financial reports in accordance with specific securities laws, regulations, and accounting standards set by regulatory authorities. Since corporate reporting standards and securities regulations can vary across jurisdictions, there is a need…
Roles of Financial Statement Analysis
The primary goal of financial statement analysis is to assess a company’s past, present, and potential future performance and financial condition. This involves using the company’s financial reports, along with other relevant information, to make informed investment, credit, and other…
Financial Statement Analysis Phases
Financial analysis is the process of interpreting and evaluating a company’s performance and position in the context of its economic environment. Analysts use financial analysis to make investment decisions and recommendations. As a generic term, the financial statement analysis framework…
Cross Rates
It is possible to back out the cross rates given two exchange rates involving three currencies. Consider a foreign exchange market with the exchange rate between the South African rand and the Chinese yuan. This market can also quote the…
Empirical Vs. Analytical Duration
Analytical duration utilizes mathematical models, assuming credit spreads and government bond yields are uncorrelated and independent. It is a solid method for estimating the bond’s price-yield relationship in numerous situations. On the other hand, empirical duration relies on historical data…
Key Rate Duration
Key rate duration (partial duration) is a financial metric that measures the sensitivity of a bond’s price to changes in interest rates at specific points along the yield curve. On the other hand, effective duration gauges sensitivity to overall parallel…
Bond’s Percentage Price Change Using Curve-based Duration and Convexity
Effective duration and effective convexity are curve-based metrics that are crucial for assessing the interest rate risk of complex instruments, such as those with embedded contingency provisions. These metrics are typically determined from bond prices derived using an option valuation…
Utilizing Effective Duration and Convexity for Option-embedded Bonds
Yield duration and convexity assume predictable bond cash flows. However, bonds with embedded options, e.g., callable or puttable bonds, have future cash flows which are uncertain. The option is exercised based on market interest rates relative to the coupon interest…
Duration and Convexity of a Bond Portfolio
Duration and convexity can be used to measure the interest rate risk of a portfolio of bonds, similar to a single bond. There are two methods to calculate the duration and convexity of a bond portfolio: Using the weighted average…
