Standards of professional conduct

Including 7 standards with 22 multiple sub-sections

I. Professionalism

A. Knowledge of the law
B. Independence & objectivity
C. Misrepresentation
D. Misconduct

II. Integrity of capital market

A. Material nonpublic information
B. Market manipulation

III. Duties to clients

A. Loyalty, prudence & care
B. Fair dealing
C. Suitability
D. Performance Presentation
E. Preservation of Confidentiality

IV. Duties to employers

A. Loyality
B. Additional compensation arrangement
C. Responsibilities of supervisors

V. Investment analysis, recommendations & actions

A. Diligence & reasonable basis
B. Communication with clients & prospective clients
C. Record retention

VI. Conflicts of interest

A. Disclosure of conflicts
B. Priority of transaction
C. Referral fees

VII. Responsibilities as a CFA Institute member or CFA candidate

A. Conduct as member & candidate in the CFA program
B. Reference to CFA I, the CFA Designation & the CFA Program

Learning to love insider trading

Thấy bài này ở blog G.Mankiw. Lôi về để sau này translate. Thích kiểu của thầy Giang khi translate sang t.việt, k chỉ simple là dịch mà thầy còn làm cho nó trở nên cực cực cực kỳ dễ hiểu.

Ờ, chuyện đơn jản là: trog n~ ng` mìh biết, trong n~ tài liệu Vnese mà mìh đọc:
- có cái kiểu thuê translator dịch rồi các bác 'cốp' đứng tên => translator k fải là economist => dịch k ra gì
- có economist/ financier ... nhưg các bác:
+ hoặc là t.a prò nên tự đọc tự hiểu t.a luôn, k fải translate cho đứa nào hiểu cả!
+ hoặc là t.a qá tệ nên chỉ có vnese, vnese & vnese thôi.

Understanding Financial statement (1): Income statement

* Components & formats

• Name: 
• Income statement
• Statement of operations/ statement of earnings
• Profit & Loss
  
•  Important concepts
• Revenue
• Net Income
• Subtotals:
• Gross profit = Rev - Cost of goods sold (COGS)
• Operating profit = Gross profit - all expenses related to running the business. [Operating profit <=> the firm's profits on its annual business activity before deducting taxes.
  
• Income after tax = Income before tax* (1-T)
• Minority interest = % income belongs to minority shareholders; subtracted from Income after tax
• Net Income = Income after tax - Minority interest
• Unbilled or accrued 
  

* Revenue recognition

1. General principles
2. Special case
1. ... (cont.)
   

Code of Ethic

• Act with integrity, competence, diligence, respect & in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession & other participants in the global capital market.
• Place the integrity of the investment profession & the interests of clients above their own personal interests
• Use reasonable care & exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions & engaging in other professional activities
• Practice & encourage others to practice in a professional & ethical manner that will reflect credit on themselves & the profession.
• Promote the integrity of, & uphold the rules governing, capital market
  
• Maintain & improve their professional competence & strive to maintain & improve the competence of their investment professional

Update 29th Oct 09: With suggestion from here, the six components could be re-ordered for easier remembering.

PEJMAR

P - Priority: Place the integrity of the investment profession & the interests of clients above their own personal interests

E - Encouragement: Practice & encourage others to practice in a professional & ethical manner that will reflect credit on themselves & the profession.

J - Judgment: Use reasonable care & exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions & engaging in other professional activities

M - Maintain: Maintain & improve their professional competence & strive to maintain & improve the competence of their investment professional

A - Action: Act with integrity, competence, diligence, respect & in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession & other participants in the global capital market.

R - Rules: Promote the integrity of, & uphold the rules governing, capital market

Capital asset pricing model (CAPM)

[ Beta, mìh đang muốn nói đến cái mà dùng trong Capital asset pricing model, cái mà được tính = cov(i,m)/variance m; cái mà definition là "is standardized of systematic risk". - cái này viết cho nhớ! ]

Đọc kỹ lại cái bài đấy mới thấy nó interesting hơn lúc trước mìh nghĩ. Nhất là cái phần loại đi dần2 những giả thiết của CAPM :D.

• Ngoài capital market line, security market line, nó còn có "characteristic line": là đồ thị hàm hồi quy E(Ri) theo beta i.
• Giả thiết nói rằng: có thể borrow @ risk-free rate, nhưng thực tế thì ko phải thế => ok, đường CML thay đổi chút chút. Cụ tỉ, nó là 1 đường gồm có
  
• 1 phần đoạn thẳng: khi tỷ trọng đầu tư vào danh mục thị trường (market portfolio) < 100% <=> lend @ risk-free rate => đồ thị như cũ
• 1 phần cong cong
• tiếp theo lại là đoạn thẳng: khi tỷ trọng đầu tư vào mar. port. > 100% <=> borrow @ interest rate > risk-free rate
  
• "zero beta": nó nói rằng ko nhất thiết fải có risk-free asset; có thể có 1 cái portfolio Z nào đó mà cov(Z, market portfolio) = zero. nói chung là câu chuyện tương tự; trừ việc market premium nhỏ đi.
• transaction cost: theo lý thuyết thì khi thấy security over/undervalued => action (sell, short sale, buy...) nhưng nhiều khi phần gain í ko bù lại đc transaction cost => nhà đầu tư chỉ 'action' đến 1 mức nào đó => securities ko nhất thiết nằm trên đường SML mà có thể nằm gần gần đấy => SML thành "band". & transaction càng nhỏ thì "band" í càng hẹp.
• heterogeneous expectations: CAPM phát triển từ Markowitz, mà 1 giả định của Markowitz là nhà đầu tư có cùng kỳ hạn đầu tư & các thứ kỳ vọng như nhau => thực tế thì kỳ hạn & kỳ vọng của NĐT là khác nhau, cũng như tax burden là khác nhau => mỗi người tự xây dựng 1 'market portfolio', tự có 1 đường CML (& SML) => aggregate: CML (SML) cũng thành "band".

DISTINGUISH BTW DIFFERENT LINES

• Efficient Frontier: 
• (Markowitz's product) 
• every point on this Frontier is an efficient portfolio that means having highest (expected) return while the risk (measured by standard deviation) is smallest.
• Ox: SD, Oy: E(r)
  
• Capital Market Line: 
• every point on CML <=> a portfolio with w% invested in risk-free asset & the remain in market portfolio
• w > 0 <=> lend @ risk-free rate
  
• if w < 0 <=> borrow @ risk-free rate
• Ox: SD, Oy: E(r)
  
• Security Market Line
• Ox: beta = cov(i,m)/variance m; Oy: E(r)
• market portfolio: beta = 1
• ev'ry point on SML showed the required rate of return of a security familiar with its standardized systematic risk
• compare btw required rate of return vs expected return of a sec. => conclude whether it's overvalued or undervalued
• RR < ER <=> the sec. is above SML => undervalued
• RR > ER <=> below SML => overvalued
  

(Hic, mìh đag ở cái giai đoạn tự viết tự hiểu, viết chỉ cần biết là mìh hiểu, còn chả biết có ai hiểu hay ko. hic hic, bạn nào đọc fải mấy entry như này cho mìh xin lỗi nhé)

notes: khi market là efficient, thậm chí là strong efficiency, ai cũng có info. như nhau & tool như nhau. Nhưng sử dụng chúng ntn, estimate ra sao... mới là vấn đề. & 1 số investors/analyst trở thành superiors. số khác, thành inferior. 1 bên là động lực, support cho efficient mar. bên kia thì ngược lại =.=.

CDS, CDO & US crisis

Bác Giang đc cái là viết cực kỳ dễ hiểu :(( (hic, :(( vì xúc động & ngưỡng mộ í, chứ k fải là :(( đểu giả theo nghĩa "dễ đến mức ko thể hiểu nổi" đâu!)

Bài này tóm tắt US crisis, giải thích rõ ràng cụ tỉ CDO là j`, CDS là j`. Năm ngoái lúc học tài chính công, làm research về vđề này, mà qả thực là hồi í hiểu lơ mơ lắm í =((. Mà nói chg là mìh ngưỡng mộ US financial mar cực kỳ, từ hồi học Derivatives í (hồi đó chú HH cũng giải thích CDO với CDS dưg rồi mìh cũng quên luôn!), thấy bọn nó thông minh kinh khủng. Trời, k biết fải giỏi toán (nói chung), giỏi kinh tế lượng, mô hình toán... ntn mới nghĩ ra đc lắm thứ nthế nhở!

Thôi từ h mìh gọi bác Giang là thầy. Bác có nhận hay ko thì kệ bác, mìh gọi cứ gọi :-"
---
update 10th Nov 09: Hic cái này hay chết ruồi. Ko cho vày đây thì fí nửa đời!

part 1



part 2

"write-down", "mark to market", "valuation allowance", "LIFO liquidation layer", "LIFO reserve"

[Đặt cục gạch, đọc xong nốt rồi sẽ viết. Cái này thú vị àh, hôm trước đọc blog bác Giang mà lúc í chưa hiểu áh.]

[Update 27th Oct 09:

1. Bổ sung thêm bài viết này có liên quan đến mark-to-market. Bài này nói về quy định của kế toán Mỹ đối với asset ở công ty tài chính; loại nào thì mark-to-market (đag thắc mắc "cty tài chính" là cái gì. Commercial bank, investment bank, hay cty cho thuê tài chính... hay cái gi gỉ gì gi???)

2. Tóm tắt cho bài Inventories: so sánh giữa US GAAP & IFRS: 2 điểm khác nhau lớn nhất.
1 là US cho fép dùng LIFO nhưng IFRS thì ko
2 là: khi đã write down, IFRS cho fép 'recover' nhưng US thì ko]

Bài này về Inventories - hàng tồn kho.

• Hàng tồn kho có thể ở 3 dạng: nguyên vật liệu (thô), sản phẩm dở dang & thành phẩm. IFRS & US GAAP quy định rằng nếu ko được tách bạch rõ ràng ở Balance sheet thì nó fải đc trình bày ở footnote của financial statements.

• Các khoản mục được tính vào 'capitalized inventory cost', tức là giá trị của hàng tồn kho:
• purchase cost - chi phí mua hàng
• conversion
• portion of fixed overhead cost (ko biết dịch là gì), with portion = real productivity/capacity level of production (*)
  
• cost related to bringing the invent. to present position & condition

• Các khoản mục ko đc tính vào giá trị hàng tồn kho mà cho vào Expense trong kỳ:
• abnormal costs: material wasted
  
• abnormal waste for labor cost & overhead cost 
• storage cost
• all administrative overhead & selling cost
• the remain of (*): eg. 90% overhead cost belongs to capitalized inventory cost =>10% belongs to expense.

• Value of invt. recorded = min (historical cost, Net realized value):
• Historical cost <=> carrying cost <=> cost carried on Balance sheet
  
• NRV = Estimated selling price in ordinary course of business - Estimated costs necessary to make the sale

• "mark-to-market": the process used to adjust asset's value to reflect current "fair" value (always realized by market price).

• WRITE DOWN:
• If "fair value" of Invt decreases => record "write-down": decrease Invt on BS while increase Expense on IS
• the amount write-down <=> valuation allowance.
• When the fair value recovers => under IFRS: reversal write-down. but under US GAAP: NO accept reversal (after write-down, it could only be written down more!)
• Reversal is limited: "fair value" <= historical cost. However, firms produce agricultural, forest, mineral products & dealer firm have NO limitation.
  

• Invt. Accounting method: FIFO, WAC, specific (under IFRS) & US.GAAP has 1 more: LIFO. For co. using LIFO method:
• Must to compute LIFO reserve: 
• = FIFO Invt. value - LIFO Invt value.
• Meaning: use in comparison btw co. using LIFO & FIFO, or in order to value the co. as if using FIFO method
• Converse COGS: COGS (under FIFO) = COGS (under LIFO) - (LIFO reserve this term - LIFO reserve last term)
  
• LIFO liquidation: happens in rising-price period, when unit of Ending Invt < Beginning Invt: some of Profit earned by using old inventories in production. It's called "phantom profit".
  

Comprehensive Income

Hôm trước đọc bài này nghĩ là "bọn VN sao lại đi ngược IAS/ IFRS thế, cái đấy fải cho vào comprehensive income chứ nhỉ". Mà giờ thì thấy mình sai bét be rồi.

Theo US GAAP:

Comprehensive income (ko biết dịch ra t.việt tn, quên mất thuật ngữ t.việt of nó rồi, hic) là n~ khoản làm thay đổi Equity, gồm: Net Income + Other comprehensive income (OCI)

Net Income lấy từ Income statement rồi; còn OCI là n~ khoản ko thuộc Income statement. Cụ tỉ gồm:

1. Foreign currency translation: Chênh lệch tỷ giá khi lập Báo cáo tài chính hợp nhất (financial statement consolidation), mà cty con (subsidiaries) thuộc qgia khác => fải chuyển đổi về chung 1 đvị tiền tệ.
2. Unrealized gain/loss of available-for-sale securities: Đối với trading securities (chứng khoán giao dịch) thì gain/loss được phản ánh ở Income statement nhưng với available-for-sale securities (chứng khoán sẵn sàng để bán) thì unrealized gain/loss ko qua IS mà chuyển thẳng vào OCI. (notes: khác nhau giữa 2 loại chứng khoán này là: trading sec. là n~ CK để giao dịch thường xuyên (actively traded). Ngoài 2 loại này còn 1 loại investment securities nữa đấy là "hold to maturity securities" => vì được giữ đến khi đáo hạn => ko cần quan tâm đến unrealized gain/loss khi market price thay đổi)
3. Gain/loss of derivatives which qualify as NET investment hedges or cash flow hedges
4. Minimum pension liability adjustments from underfunded defined-benefit plans

2 cái cuối ko hiểu lắm nên ko explain:">

(IFRS quy định tương tự nhưng ko gọi đấy là OCI mà thôi.)

Tóm lại: đến giờ vẫn ko biết exactly chênh lệch tỷ giá (giả sử, khi mìh bán hàng ra nước ngoài) hạch toán ntn, nhưng mà chắc chắn là nó ko fải là cái thứ đc tính vào OCI.

Behavioral Finance

Behavioral finance considers how various psychological traits affect the ways that individuals or groups act as investors, analysts, portfolio managers

Explain biases based on psychological characteristics:

1. Prospect theory: fear losses much more than they value gains => hold on to 'losers' too long & sell 'winners' too soon. 'cos utility depends on deviations from moving reference points rather than absolute wealth.
   
2. Overconfidence in forecasts => overestimate growth rates for growth co. & overemphasize good news while ignore negative news for the firms.
3. Confirmation bias: => lead to: look for information that supports their prior opinion. eg.: consider growth co. <=> growth stock, cyclical co. vs cyclical stock, defensive co. & defensive stock...
   
4. Noise traders: make price volatile without relevant information 'cos have no OWN opinion, tend to follow newsletter writers who in turn, also "follow the herd"
5. Escalation bias => put more money into a failure (eg. "averaging down" strategy). Solution: ignore sentiment; reevaluate the stock: was there any bad new missed in the initial valuation? or if its valuation is confirmed, acquire more of this 'bargain'.

=> Fusion investing: integration of 2 elements of investment valuation: fundamental value & investor sentiment.

---
~ Jan 09, I read a graduation thesis 'bout this topic. @ that time I thought that it was funny, stupid. IMO, finance market is for quantitative method, complex model, lots of math, formula, etc.
Hic. Til now I've realized its meaning (although I don't remember what mentioned in the thesis).
Vnese calls it "ếch ngồi đáy giếng".

Arbitrage constraints (related to anomalies), market efficiency

8 thêm tẹo. Hnay trong đống bài loằng ngoằng ở Cur 5 thì có nói về n~ anomalies in efficient mar => arbitrage opportunities. Tuy nhiên cũng có n~ limitation khiến arbitrage ko thực hiện đc.

Đây là 1 vdụ. Cái này thuộc về limitation of capital :) (may quá đỡ ghét cái Cur 5 đc 1 tí)

Và 2 anomalies đây nữa.

Market efficiency nữa này. Tóm tắt:
- Theory: khi có anomaly thì xảy ra arbitrage, cho tới khi profit = zero <=> all info. reflects in price => efficient mar.
- Fact: can't arbitrage => mar becomes inefficient!

Thêm 1 bằng chứng cho cái sự lucky của mìh. Biết blog bác Giang, để connect n~ thứ đag học với n~ thứ realistic. thật thích :x

(ko biết my English có kih khủng lắm ko. IMO: arbitrage constraints <=> constraints that limit arbitrage)

p/s: lại break today's plan. speed up!!!

Liquidity

Bài này đọc rồi. Mà quên. Post lại cho nhớ. Hình như bác Giang còn 1 bài về liquidity vs solvency. Heheeh, tìm thấy rồi.

Tóm tắt liquidity: có 2 nghĩa:

1. mar. liquidity <=> mar. depth, measured by bid-ask spread: smaller => more liquid
(update 22nd Oct 09: vừa đọc lại về liquidity. cái measured by bid-ask spread có vẻ ko hẳn đúng. nói lại theo sách nhé.
liquidity = marketability + continuity price
marketability <=> able to sell assets quickly
continuity price <=> price NOT change MUCH compared with prevail price, unless there's a new significant info.
=> these 2 things require DEPTH <=> there're numerous buyers & sellers who ready to trade @ price below or above current market price.)

2. fund liquidity <=> equity capital

& đây là liquidity vs solvency

Notes: Hôm trước làm bài bị nhầm nhá. current ratios => liquidity, còn bankruptcy liên quan tới solvency ratios.

Lại thấy bài này có liên quan, post vào đây luôn: 3 stages in crisis
Bắt đầu là liquidity, tới solvency & cuối cùng là deleverage.

p/s: làm tn nhở. dùng từ theo kiểu 'bác Giang' thì 'giới Vnese econ. blog' bây giờ có mỗi bác. hic. monopoly wá. mà blog bác nh` wá. mìh đọc mãi mãi mãi mãi vẫn chưa hết nhá!

Cur 5

Sắp đc 1/4 Cur 5 rồi, mà ức fát khóc nên ngồi khóc lóc 1 lúc đã.

Ôg í viết cái kiểu thật là, cứ như ko bôi ra thì người ta ko biết là ôg í jỏi. mìh tiếc là đã ko đọc Cur 5 sớm hơn để complain vào cái interview của bọn CFA. Có 110pages: mìh còn đinh ninh sung sướng lên kế hoạch là chỉ học 1 buổi thôi. Thế mà bôi ra thành 4 buổi :((.

Thôi ko khóc nữa. Gì đâu mà, thấy khó là ngồi khóc àh. 23 tuổi r chả nhẽ lại = em Hương 6 tuổi, tập viết ko viết đc số 9 thế là ngồi khóc :))

Portfolio mgnt (1): The asset allocation decision

Before talkin' or even thinkin' 'bout investment, we need to talk 'bout insurance.

Stop thinking 'bout investment till you has put smth in your insurance: for your assets (house, car, etc...), yourself, to prevent from unemployment or accident.

U could say that insurance is low return & even, waste money. However, let's do double thinking. Do u want to have a chance to use your insurance? of course, not.

Insurance is only a tool to defense risk. That means, when risks happen, you or your lover will get money:
- if the assets were broken: u could repair or buy new one with the money
- if it was an accident to u: u could spend money for hospital services & for your consume during the time.
- if u lost your job: it helps u pay for your life while looking for new job
- if, unfortunately, u died: it pays for your funeral & for your lovers, your families to maintain their life after that.

To summarize:

• Insurance is for protection, not for return
• Insurance should be thought & done first, before having any investment plan
• Insurance helps us & our families, lovers to deal with unexpected problems, though typically, no one wanna have a "chance" to use the insurance money

After ensuring that u've paid for insurance, u can think 'bout an investment plan. Let's start with life cycle as different ages will have different tastes in horizon, risk & return.

Corp.finance 5: corporate governance

Summarize corporate governance considerations (source: cur 4, pg 156-157)

THE BOARD

Investors & shareholders should

1. Determine whether a Company's Board has, at minimum, a majority of Independent Board Members 
2. Determine whether Board Members have the qualifications the Co. needs for the challenges it faces.
3. Determine whether the Board & its committees have budgetary authority to hire Independent third-party consultants without having to receive approval from management
4. Determine whether Board Members are elected annually, or whether the Co. has adopted an election process that staggers the terms of Board Member election
5. Investigate whether the Co. engages in outside business relationship with management or Board Members, or individuals associated with them, for goods & services on behalf of the Co.
6. Determine whether the Board has established a committee of Independent Board Members, including those with recent & relevant experience of finance & accounting, to oversee the audit of the Co.'s financial reports
7. Determine whether the Co. has a committee of IBMs (Independent Board Members) charged with setting executive remuneration/compensation
   
8. Determine if the Co. has a nominations committee of IBMs that is responsible for recruiting Board Members
9. Determine whether the Board has other committees that are responsible for overseeing management's activities in selected areas, such as corp. governance, M&A, legal matters, or risk management.

MANAGEMENT

Investors & shareholders should:

1. Determine whether the Co. has adopted a code of ethics, & whether the Co's actions indicate a commitment to an appropriate ethical framework
2. Determine whether the Co. permits Board Members & management to use Co. assets for personal reasons
3. Analyze both the amounts paid to executives for managing the Co's affairs, & the manner in which compensation is provided to determine whether compensation paid to its executives is commensurate with the executives' level of responsibilities & performance, & provides appropriate incentives.
4. Inquire into the size, purpose, means of financing & duration of share-repurchase programs & price stabilization efforts.

SHAREOWNER RIGHTS

 Investors & shareowners should:

1. Determine whether the Co. permits shareholders to vote their shares by proxy regardless of whether they are able to attend the meetings in person
2. Determine whether shareowners are able to cast confidential votes
3. Determine whether shareowners can cast the cumulative number of votes allotted to their shares for one or a limited number of Board norminees
4. Determine whether shareowners can approve changes to corp. structures & policies that may alter the relationship btw shareowners & the Co.
5. Determine whether & under what circumstances shareowners can nominate individuals for election to the Board
6. Determine whether & under what circumstances shareowners can submit proposals for consideration @ the Co's annual general meeting.
7. Determine whether the Board & management are required to implement proposals that shareowners approve.
8. Examine the Co's ownership structure to determine whether it has different class of common shares that separate the voting rights of those shares form their economic value
9. Determine whether the corp. governance code & other legal statutes of the jurisdiction in which the Co. is headquartered permit shareowners to take legal or seek regulatory action to protect & enforce their ownership rights.
10. Carefully evaluate the structure of of existing or proposed takeover defenses & analyze how they could affect the value of shares in a normal market environment & in the event of a takeover bid.
    
    

    IMPORTANT DEFINITIONS

    
    

• corporate governance: system of internal controls & procedures by which individual co. are managed. Good corp. governance practices seek to ensure that:
• Board members act in the best interests of shareholders
• related to interest conflict
  
• the Co. acts in a lawful & ethical manner in their dealings with all stakeholders & their representatives
• all shareholders have the same right to participate in the governance of the Co. & receive fair treatment from the Board & management, & all rights of shareowners & other stakeholders are clearly delineated & communicated.
• the Board & its committees are structured to act independently from management, individuals or entities that have control over management, & other non-shareholders group.
• appropriate controls & procedures are in place covering management's activities in running the day-to-day operations of the Co.
• the Co's operating & financial activities, as well as its governance activities, are consistently reported to shareowners in a fair, accurate, timely, reliable, relevant, complete & verifiable manner
• Independence: a Board member considered as Independent member MUST NOT have a material business or other relationship with some specific individuals/groups
  
• Board members or Directors: all individuals who sit on the Board, including Executive Board Members, Non-Executive Board Member, Independent Board Members
• Ex-BM: members of executive management
• IBM: individual who meets the "Independence" qualification.
  
• Non-ex BM: neither Ex-BM nor IBM. represent interests that may conflict with those of other shareowners (such as: union)
  
• Board: refers to both the Supervisory Board
• Board of Corp. Auditors in countries with a Two-Tier Board structure (such as Japan)
  
• Board of Directors in countries that use a Unitary Board

Two structures of Board

• Two-Tier Board (Dual Board): has 2 elements: Management Board & Supervisory Board
• Mgnt Board: 
• consists exclusively of Ex-mgnt & its charged with running the Co. on a daily basis & 
• setting the corp. strategy for the Co.
• do NOT sit on the Co's Supervisory Board
• Sup. Board:
• charged with overseeing & advising the Co's MB
• includes only IBM & Non-Ex BM
• Corp. Auditors System:
• this structure is called Corp. Auditors System & very popular in Japan
• Including:
• Board (<=> Sup. Board)
  
• Board of Corp. Auditors
  
• Unitary Board: 2 elements: Boards & Committee system
  
• Board (<=> Sup. Board) 
• may include all: Ex BM, Non-ex BM & IBMs.
• Oversees & advises mgnt & helps set corp. strategy, it could ignore daily activities but can't ignore important matters i.e. mergers, acquisitions, divestitures & sales (spin-off?)
• Committee system
• <=> Unitary Board in Japan (in comparison with Corp. Auditors system)
• use a Board consisting of Ex-BM, IBM & Non-ex BM

• Company: 
• firm in which shareonwers have an ownership position
• in which investors are considering an investment
• (hic, so, all positions used "firm" in Corp. finance should be change into "company". the reason is that i'm lazy to type company so i use "firm" for shorter typing)
• Investors: all individuals or institutions who are considering investment opportunities in shares & other securities of the Co.
• Shareowners (shareholders, in  my typing /:) ): distinguished from investors by referring only to those individuals, institutions or entities that OWN shares or common or ordinary stocks in the Co.
  

Corp.finance 4: Financial statement analysis (FSA)

Introduction:
In this reading, we use 2 tools to do FSA:

• Dupont analysis for historical performance: separate ROA, ROE into some parts which could tell more 'bout the performance.
• Pro foma for future forecast

Ok, let's start.

DUPONT ANALYSIS

• Applying for ROA
• = Net income/total assets
• = NI/sales * sales/total assets
• = net profit margin * total asset turnover
• Net profit margin can be analyzed more specific:
• = (Earning before tax - taxes)/sales
  
• = (EBT-taxes)/EBT * EBT/operating income * operating income/sales
  
• = (1-taxes/EBT) * EBT/ operating income * operating income/ sales
• = tax burden * interest burden (or: effect of nonoperating item) * operating profit margin
  
• for ROE:
• = NI/total Equity
• = ROA* total assets/ total equity
• => applied similar analysis

PRO FOMA technique

• Use: forecast future financial statement
  
• Steps:

Corp.finance 3: Working capital Management (1) - cash & Short-term investments

Working capital, including:

Asset:

1. Cash
2. Short-term investments
3. Account of Receivable (A/R)
4. Account of Payable (A/P)
5. Inventories

Liabilities:
Short-term liabilities

Measure the efficiency of them in operation activities:

• Ratios
• Current ratio = current asset/current liability = CA/CL (notes: NO AVERAGE!)
• Quick ratio (acid-test ratio) = (cash + short-term marketable investment + Receivables)/CL
  
• Turnover
•  A/R turnover = Credit sales/AVERAGE receivables
• Credit sales: % of sales or if n/a: use industry data
• A/P turnover = Purchases/AVERAGE payables
• Purchase = Ending Inventory - Beginning Inventory + COGS
• Inventory turnover = COGS/AVERAGE inventory
  
• Days:
• Number of days of Receivables = Accounts Receivable/ AVERAGE day's sales on credit
• = A/R : (credit sales/365)
  
• Number of days of Payables = A/P / AVERAGE day's purchases
• = A/P : (purchases/365)
• Number of days of Inventory = Inventory/ AVERAGE day's COGS
• = Inventory/ (COGS/365)
• Notes: 
• turnovers do NOT EQUAL to 365/number of days; vice versa: Number of days... NOT equal to (1/turnover)*365
• however, when the question does NOT provide enough information => use info. as much as possible
  
• Inferred definition:
  
• Operating cycle = No. of days of Receivables + No. of days of Inventory
• NET operating cycle <=> cash conversion cycle = No. of days of Receivables + No. of days of Inventory - No. of days of Payables = Operating cycle - No. of days of Payables

Now, let's talk 'bout managing these 5 items

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2011.03.22: trong lúc google về mấy mô hình quản lý tài sản ngắn hạn, tìm được file này khá đầy đủ, cụ tỉ, chi tiết. personally mình thấy phần này trong CFA viết ko đầy đủ sâu sắc cho lắm (hay đợi L2, L3 mới sâu sắc thì ko rõ nữa ^^)

Link đây

Corp.finance 2: Cost of capital (Chi phí vốn)

* Definition

• Cost of capital: 
• the rate of return required by capital suppliers: bondholders, stockholders (owners)
• the opportunity cost of funds for the suppliers of capital
• Component of capital: firm has several alternatives for raising capital: bonds, stocks, preferred stock => each source of capital becomes a component of the firm's funding & has a COST => called: component of capital
• Weighted average cost of capital: WACC
• Wd*rd*(1-T) + Wp*rp + We*re
• Wd, Wp, We: the portion of debt, preferred stock, equity, respectively, in total capital (notes: capital, in capital budgeting, NOT includes short-term capital)
• rd, rp, re (or Kd, Kp, Ke): the cost of debt, preferred stock, equity, respectively
• T: tax rate
  

* More detailed

• Taxes: 'cos debt expenses are deductible => the tax saving is subtracted cost of debt
• Weights
• target capital structure
• current capital structure, @ market value
• average (industry) data
  
• Marginal cost of capital (MCC) & Investment opportunity schedule (IOS)
• Flotation cost: add to expenses of the year <=> cash out flow; NO add to cost of capital
  

Now, let's talk 'bout cost of each type of capital
1. Cost of debt:

• YTM
• Debt-rating approach
• Some features could makes rd higher or lower, depends on the benefit it creates, belongs to whom

2. Cost of preferred stock

rp = D1/P0

3. Cost of equity

• CAPM approach: Ke = E(r) = Rf + beta*(Rm - Rf)
  
• DDM approach: Ke = D1/P0 + g
• g = growth rate = (1 - D/EPS)*ROE = b*ROE
• b = company's earning retention rate = 1 - D/EPS
• Bond yield plus risk premium approach: E(r) = bond yield + risk premium (notes: bond yield NO deducting tax)
  
• Adjust for country risk
• country equity premium = sovereign yield spread * (annualized standard deviation of equity index/ annualized standard deviation of the sovereign bond market in terms of the developed market currency) 
• Or, in short: Rc = delta Rf * SDe/SDd
• affection to E(r) in CAPM: E(r) = Rf + beta * [(Rm - Rf) + Rc]
• Estimating beta?
• beta equity (or beta levered) ### beta asset (or beta unlevered)
• beta asset = beta equity / [1+ ((1-t)*D/E)]
• beta equity = beta asset* [1 + (1-t)*D/E]
  
• Estimating a beta using the pure-play method
1. select the comparable: determine comparable company or companies operating in similar business risk
2. estimate those comparable companies' equity beta
3. unlever the equity beta at (2) => beta asset
4. lever the beta asset at (3) (for the financial risk of the considering company/project) => equity beta of the considering company/project
   

* Reality: CAPM is popular: larger co., public co., knowledge CEO/CFOs => use CAPM more.

Corp.finance 1: Capital budgeting (hoạch định ngân sách vốn đầu tư)

* Role, meanings
- liên quan tới cơ cấu tài sản & cơ cấu vốn <=> ảnh hưởng đến toàn bộ hoạt động của DN

* Steps of capital budgeting: 

1. generating idea
   
2. analyzing individual proposal
   
3. planning the capital budgeting
   
4. monitoring & post-auditing
   

* Projects categories