Case Study of Perak Transit Berhad (0186)


Perak Transit Berhad is an investment holding company, which principally involved in the operations of an integrated terminal complex and provides public transportation services in Malaysia. It has an integrated public transportation terminal (IPTT) in Ipoh, Perak which is also known as Terminal Meru Raya (New Name), before that it is known as Terminal Aman Jaya.

On 5 September 2008, Perak Transit Berhad was incorporated as a private limited company in Malaysia. While on 6 October 2016, it has been listed in ACE Market and successfully transform into Main Market listed in Bursa Malaysia on 19 December 2018.

Business Model

Perak Transit Berhad has a robust recurring income-driven from Terminal Meru Raya (Aman Jaya) in Ipoh, Perak. Besides provide management services for bus operations, they also diversify their business into different sectors such as rental space for advertisement, seminar room, office, shop, booth, kiosks, bus services and petrol station operation. Their primary revenue of this company comes from Bus Services and Petrol Station Operation. Under the government’s development of blueprint, the operation of bus terminal by Perak Transit became a monopolised business model in Perak.  All the buses, as well as taxi, are charged entrance fees and other fees (included with tax) for the usage of basement car park and lavatory. Besides, all buses will refill the petrol at the designated petrol station owned by Perak Transit Berhad before they set off to a specific location.

Based on the past five financial years as above, the profit for the year is increasing years on years start from FYE2014 (+86.92%), FYE2015 (+42.32%), FYE2016 (+13.22%), FYE2017 (+33.56%) until FYE2018 (+24.18%). According to Warren Buffet, he said that he only would consider for the company which have listed for about ten years or above. For PTRANS, it listed on FYE2016 until FYE2018 which is three years. It does not meet the requirement for Warren Buffet. However, the revenue, EBITDA, total assets of the company also keep on increasing years by years.

The most important thing that an investor will concern is since the borrowings for the company are increasing due to the business expansion, is the company able to pay back his liabilities? Based on my computation of liquidity ratio, we indicate that PTRANS have a slightly decreases in the current ratio in FY2018, which is 1.1910 times compared to FY2017, which is 1.5071 times. However, PTRANS still do not face any liquidity problem and it even capable of paying off the obligations when it comes to due in FY2018 by using the current assets such as inventories, trade and other receivables, other assets, cash and bank balances.


Cash Flow Statement

Based on the cash flow statement of PTRANS, the Net Cash from Operating activities in FY2018, which is RM27,211,160 is lower than FY2017, which is RM40,719,562. Is this a bad sign for the company? If we look more closely, you will realise PTRANS paid out a massive amount of the trade and other receivables and buy more other assets in FY2018 which cost him RM16,692,674 and RM4,799,623. While in FY2017 trade and other receivables only cost him RM506,605 and RM4,799,623 in other assets which are lower than FY2018. Therefore, it results in the net cash from operating activities decreased in FY2018 when compared to FY2017.

Based on the cash flow from investing activities, the Net cash from investing activities is increasing in FY2018, which is RM80,875,258 from RM74,538,392 in FY2017. It was due to purchase more new property, plant and equipment in FY2018, which cost him RM81,353,339, which is higher than FY2017 with the amount of RM71,245,621. Therefore, it results in the net cash from investing activities was higher in FY2018.

While based on the cash flow from financing activities, the net cash flow from financing activities in FY2018, which is RM50,294,965 is higher compared to FY2017, which is RM25,028,092. An increase in this number indicates that the cash has come into the company will help to boost the asset levels.

Future Prospect & Challenges

Perak Transit (PTRANS) has built a new bus terminal in Kampar. I believe that the Kampar Terminal will be served well as a transportation hub in the university town with UTAR, TARC and Westlake International School amidst a growing population. However, based on The Edge newspaper, the full certification of completion and compliance (CCC) has yet to be received as inspection are still ongoing, while the management is also addressing some issues of the routing of electricity to supply in Terminal Kampar, it shall be resolved in the 4th Quarter of FY2019. They expect that the terminal can be fully operation start in 1st Quarter of FY2020, which is after 2 to 3 months of renovations work for new tenants.

According to the Managing Director Dato’ Sri Cheong Kong Fitt, has stated that the bus terminal is the core business for the company which intends to expand more for future earnings growth. PTRANS had received a Letter of Intent from SPAD on the appointment as network operator for the SBST Programme for a period of 8 years. Following by the Terminal Kampar’s operational commencement, the management will subsequently look to take the new project next year to replicate experience and expertise from operating terminals Aman Jaya and Kampar to develop the new bus terminals in Bidor and Tronoh which would individually cost between RM150 million and RM200 million with two years construction period. Besides, Bidor and Tronoh, Perak Transit also has been acquiring land in Kinta but also exploring opportunities for construction and management of Terminal in Termerloh, Pahang, Kemaman, and Terengganu.

My Insight

Based on my calculation, Perak Transit Berhad has a fair value of RM0.947. The current market value of Perak Transit Berhad is RM0.19 (Based on 15 August 2019). However, for the Discounted Earnings Model, it shows that Perak Transit currently is undervalued. PTRANS is committed to maintaining its dividend payout around 35%, which is above the official policy of 25% or more. As a side note, the management has guided that the dividend payout would now occur twice a year (from three times a year previously). (Sources: The Edge). PTRANS also has a beta (500days) of 0.863 indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), PTRANS have an expected market return of 6.18%.

In my humble opinion, although the company share capital is vast and the debt is high, we can see that the prospects of this company are very bright. I believe that the company can sustain the business with stable income with stable recurring income.


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Written by Stella Goh | 19 August 2019.

CFA Level I Financial Reporting and Analysis (Part IV)

Today, I would like to talk about the last two readings in this chapter. Hopefully, all of you have a better understanding of my previous articles. In this study session, it introduces more about the quality of financial reporting. Candidates can learn what the differences of financial reporting quality that may exist in a company and what is the objective to identify them are. Let’s look at what we can learn in Reading 31 and Reading 32.

Reading 31 Financial Reporting Quality

In reading 31, candidates can have a better understanding of the concept of financial reporting quality. The International Accounting Standards Board (IASB) and the Financial Accounting Standard Board (FASB) are setting up the accounting standards to produce a high quality of financial reports which can lead to increase in the degree of relevance, faithful representation, comparability, timeliness, verifiability, and understandability in the financial statement. A proper financial report can provide analysts or investors to have an appropriate assessment of the company’s performance and prospect, helping them to make a sound investment decision. Whereas financial reporting contains inaccurate, misleading or incomplete information will lead the investors or analysts to suffer losses in their investment but also will reduce the confidence in the financial system.

Candidates are also able to learn how to distinguish between financial reporting quality and quality of reported results, which are also known as quality of earnings. Quality of earnings refers to the proportion of income attributes to the core operating activities of a business. The terms of ‘quality of earnings’ is used in practice to encompass the quality of earnings, cash flow and balance sheet items in a company. The concept of earnings quality and financial reporting quality are interrelated because there is a correct assessment of earnings quality only when the necessary level of financial reporting quality achieved.

The differences between conservative accounting and aggressive accounting, also will be discussed in this reading, together with some examples provided in the textbook. Conservative accounting is a practice that understates the financial performance of a company. It arises in a period when the management has exceeded the targets before the end of the period, they started to decrease the company’s reported performance and financial position in the current period and may increase its reported performance and financial position in a later period. While for aggressive accounting, it is a practice that used to obscure the poor performance where the financial performance will be overstated. It is also possible for poor reporting quality to occur the paint the company with high-quality earnings. Some of the companies are pressured to do so because they can present the company’s performance in the best light for investors and analysts. However, aggressive accounting will expose investors and managers to more risks because they are less likely to manage the risks carefully if they are more comfortable with their performance.

Furthermore, candidates are also able to learn on the: –

  • Spectrum for assessing financial reporting quality
  • Motivations cause management issues financial reports with low quality
  • Conditions that are conducive to issue fraudulent financial reports
  • Presentation choices, such as Non-GAAP measures
  • Accounting warning signs/methods to detect manipulation of information in financial reports

Reading 32 Financial Statement Analysis: Applications

In the last reading of this chapter, candidates can have a better understanding of how to evaluate a company’s past financial performance and explain how a company’s strategy is reflected in the previous financial performance. There are two types of analysis, such as cross-sectional analysis, and trend analysis are used by investors or analysts to measure the company’s historical performance over time. Cross-sectional analysis is a type of analysis which investors or analysts use to compare a firm’s ratio with some chosen industry’s benchmark or with its peers to produce unique insights for that industry. While for trend analysis, also known as time series data analysis, is a type of statistical technique which used by investors or analysts to predict the future stock price movements or performance by analysing the historical trends of data within the market.

Besides, candidates are also able to learn how to project future financial performance. Projection of future financial performance is used to determine the value of a company or its equity components. It may also use by credit analysis to project the finance or acquisition finance to determine whether a company cash flows are adequate to pay their interest and principal on its debts. Moreover, it will also be used to evaluate whether a company will likely remain in compliance with it financial covenants. Here are some of the examples source of data for analyst projections: company projections, company’s previous financial statements, industry structure and outlook, and macroeconomic forecast.

Furthermore, candidates also able to learn more on these together with some examples provided in the textbook: –

  • Describe the role of financial statement analysis in assessing the credit quality of a potential debt investment
  • Describe the use of financial statement analysis in screening for potential equity investments
  • Explain appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.


In conclusion, based on these 2 readings, candidates can have a better understanding on selected applications of financial analysis, how to evaluate the past financial performance, projection of future financial performance, assessment of credit risk, and the screening of potential equity investment. However, analysts must know the financial reporting standard very well because the standard evolves, analysts must stay together with the current standards to make the right investment decision. Last but not least, it is essential that candidates must be familiar with the materials covered in this topic since this topic also carry a quite higher percentage of marks in the exam.

Written by Stella Goh | 8th August 2019

CFA Level I Financial Reporting and Analysis Part III

I hope you have a better understanding of what are the majors’ things of the financial statements after reading my previous article. This current article is a continuation from the last blog titled “CFA Level I Financial Reporting and Analysis (Part II)”. Today we will talk about content we can learn from reading 27 to reading 30.

Reading 27 Inventories

In this reading, candidates can have a better understanding of what are inventories in the balance sheet. The merchandisers, such as wholesalers and retailers, will purchase the stocks and sell it to generate profits. There are three types of inventories, which are raw materials, work-in-progress and finished goods. Raw materials are materials in the primary production or manufacturing of products. Work-in-progress’s list refers to the stocks that have started the conversion process from raw materials into finished products but not yet complete.

Finished products relate to the goods that have been finished by the manufacturing process and ready for sale.

The most exciting things candidates can learn in this reading are that they can know the three different types of inventory valuation methods as below:

1. Weighted-Average Cost Method

2. First In, First Out (FIFO),

3. Last In, First Out (LIFO).


For companies in the United States, they operate under US Generally Accepted Accounting Principles (US GAAP) allows for all three methods. While for International Financial Reporting Standards (IFRS), it only permits the Weighted-Average Cost Method and First In, First Out Method.

Moreover, candidates are also able to learn on: –

  • How to distinguish between cost included in inventories and price recognised as expenses
  • Explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods
  • Explain FIFO reserve and LIFO liquidation together with their effects
  • Convert the company’s reported financial statements from LIFO to FIFO
  • Explain the issues that analysts should consider when examining a company’s inventory disclosures and other sources of information
  • Calculate and compare the ratios of companies, including companies, use different inventory methods.


Reading 28 Long-Lived Assets

In Reading 28, candidates can have a better understanding of such as the acquisitions of long-lived assets, allocation of the costs of long-lived assets over their useful lives, and accounting for de-recognition of long-lived assets. Long-lived assets are also known as non-current assets which classify into tangible assets, intangible assets and financial assets which can retain for more than one year.

Tangible assets are physical and measurable assets that in a company’s operation such as property, plant and equipment. It is sometimes used as a fixed asset such as land, buildings, furniture and fixtures, machinery and equipment, and vehicles — intangible assets, also known as non-physical assets such as goodwill, brands, recognitions and intellectual property. Intellectual property includes patents, trademarks, and copyrights. While for financial assets, it includes investment in equity or debt securities issued by other companies.

Besides, candidates are also able to learn on: –

  • Revaluation model based on the changes in fair value of an asset
  • Concepts if impairments such as an unexpected decline in value of an asset
  • Describes financial statement presentation, disclosures, and analysis of long-lived assets
  • Differences in financial reporting of investment property compared with property, plant and equipment
  • Explain and evaluate how leasing, purchasing assets, finance lease and operating lease affect the financial statements and ratios from the perspective of both the lessor and lessee.

Reading 29 Income Taxes

In this reading, it will focus more on income tax accounting and reporting. Income tax refers to the tax imposed by the government on income generated by business or individual within their jurisdictions. Every taxpayer must file an income tax return annually to determine their tax obligations. Government collect taxes to fund their activities such as provides goods for citizens, pay government obligation. The analysts will find it challenging to analyse income tax expenses. It was due to various permanent and temporary timing differences between accounting that are used for income tax reporting and the accounting in the company’s financial statements.

Besides, candidates are also able to learn on how to differentiate between the taxable income and accounting profit, recognition and measurement of current and deferred taxes, calculation on the tax base of a company’s assets and liabilities together with some examples provided in the textbook. Moreover, candidates are also able to learn on: –

  • How to explain the deferred tax liabilities and assets are created
  • Factors used to determine how a company’s deferred tax liabilities and assets should be treated for financial analysis
  • Evaluate the effects of tax rate changes on a company’s financial statements and ratios
  • Identify the key provisions of and differences between income tax accounting under International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (US GAAP)


Reading 30 Non-Current (Long-Term) Liabilities

In reading 30, it focuses more on bonds payable, leases together with the pension liabilities. Non-current liabilities, also known as long-term liabilities, are the obligations that arise from different sources of financing and various types of creditors. For examples, bonds, payables, finance lease, deferred tax liabilities, and so on. Bonds, also known as a fixed-income security, is a type of debt instrument created to raise capital to finance their projects and operations. Usually, it is issuing by the corporation, cities, and national government at a fair value.

Besides non-current liabilities, candidates are also able to learn how to differentiate between a finance lease and an operating lease. Finance lease and operating lease are a common form of lease agreements that an individual goes for it. A lease is an agreement wherein the lessor will grant rights to the lessee to use the lessor’s property in exchange for certain periodic payments. Moreover, candidates can also learn more on a pension, other post-employment benefits, and disclosure of defined contribution in this reading together with some examples provided.

Furthermore, candidates are also able to learn on:

  • How to describe the interest methods and calculate the interest expenses and interest payment
  • Amortisation of any bonds discount or premium
  • Derecognition of debts
  • Disclosure of information about debt financing
  • Calculate and interpret the leverage and coverage ratios



In conclusion, candidates will learn on the specific categories in financial reporting. Such as assets and liabilities, but also inventories, long-lived assets, income taxes, and non-current liabilities because they can bring effects to the financial statements. Besides, the specific categories in financial reporting also used to report the measures of profitability, liquidity, and solvency. Based on these, candidates and analysts can choose which accounting treatments are corresponding to the effect on the reported performance, and the potential for the financial statement manipulation.

Written by Stella Goh | 2nd August 2019

CFA Level I Financial Reporting and Analysis (Part II)

In my previous Article of “CFA Level I Financial Reporting and Analysis (Part I)”, I hope you had understood Reading 21 and Reading 22. Today, I would like to continue to discuss on what content we can learn from Reading 23 to Reading 26.

Reading 23 Understanding Income Statements

In this reading, candidates can have a better understanding of the income statement together with the comprehensive income. The income statement is a statement which is also known as Profit & Loss (P&L) statements, Statements of Earnings, and Statements of Operations. The income statements display a company’s revenue, cost incurred, gross profit, selling and administrative expenses, other expenses and income, taxes paid and net profit. The basic equation which underlying the income statements are as follow:-

Total Revenue – Total Expenses = Net Income

Besides, in this reading candidate are also able to learn on the general principles of revenue recognition, accrual accounting, specific revenue recognition applications, the implication of revenue recognition, principles of expenses recognition, specific expenses recognition applications, and impact of expense recognition. Candidates can differentiate between income statement presented by International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP). Moreover, the differences between operating components versus non-operating components of income statements, dilutive securities versus anti-dilutive securities, changes in accounting policies, analysis of non-recurring items and the explanation about financial reporting treatment also will be discussed in this reading together with some examples provided.


Reading 24 Understanding Balance Sheets

In this reading, candidates can have a better understanding of balance sheets. A balance sheet is a financial statement of a company that used to report on the company’s assets, liabilities and shareholder’s equity. A balance sheet can be used to assist investors in computing the rates of returns and evaluating the company’s capital structure. Assets in the balance sheet can be classified into either short-term or long-term assets. The short-term assets such as cash, marketable securities, and accounts receivables will be consumed within one year. Whereas the long-term assets such as lands, buildings, office types of equipment, furniture, fixtures and fittings, will be consumed more than one year. While for liabilities, it can also be categorised into either current liabilities or non-current liabilities in the balance sheet. A liability is an obligation or legal financial debts that arise during business operations.

For balance sheet to reflect on the true picture, the assets are always equal to the liabilities plus equities. The formula is as follow:-

Assets = Liabilities + Equity

Besides elements of balance sheets, candidates are also able to learn on:

  • How to interpret and convert the balance sheets into the standard size of balance sheets,
  • How to determine the use and limitation of a balance sheet, alternative formats of balance sheet presentation, components of shareholder’s equity,
  • How to calculate and interpret the solvency and liquidity ratios in this reading, together with some examples provided.

Reading 25 Understanding Cash Flow Statements

In reading 25, candidates are also able to have a better understanding of how the cash flow activities are reflected in the company’s cash flow statement. Cash flow statements are used to measure how the companies use it to manage their cash position.

Besides, candidates are also able to learn how to differentiate the three primary areas, such as operating activities, investment activities, and financing activities. Operating activities such as account receivables, account payables, inventory costs, depreciation, etc are used to measure how much cash is generated by a company’s products or services and how much money is being spent to produce or deliver products and services. For investing activities, it highlights the changes in cash outflow, which results from capital expenditures such as new property, business vehicles, or equipment, etc. While for financing activities such as the issuance of stocks, dividend payment, and so on, it records the changes in the cash flow, which are regarding the companies to raise capital for their business.

Moreover, candidates are to learn:

  • To differentiate between the direct and indirect methods from the operating activities
  • How to convert cash flow from indirect methods to direct practices, know the steps to prepare direct and indirect cash flow statements,
  • How non-cash investing and financing activities are reported,
  • How the cash flow statement linked to the income statement and balance sheet statement, cash-based information versus accrual-based information from an income statement
  • How to contrast the cash flow statements prepared under International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP).

Reading 26 Financial Analysis Techniques

A financial analysis tool is essential, which can be used to assess a company’s performance and trends. The primary sources of data they use for analysis will be the company’s annual reports, financial statements, notes, and management commentary. In this reading, candidates can learn more about the different ways of data presented in the financial reports prepared under the International Financial Reporting Standard (IFRS) and United Generally Accounting Principles (US GAAP). An analyst typically needs to supplement the information found in the financial reports with other details such as information on the economy, industry, comparable companies and the company itself.

Besides, candidates are to learn tools and techniques for financial analysis, interpret the relationship between ratios, a requirement of segment reporting.

Also, on how the ratio analysis with other methods can be used to model and forecast the earnings in this reading. Last but not least, the application of DuPont Analysis, Return on Equity, and Credit Analysis, also will be discussed in this reading, together with some examples provided.


In conclusion, candidates can understand very well on the three major of financial statements such as income statement, balance sheet and cash flow statement. Essential things in these readings are the purpose, elements, construction, pertinent ratios, and standard size analysis are presented for each of the significant financial statements. At the end of these reading, it concludes with a discussion on financial analysis technique, which includes the use of ratios to evaluate the corporate financial health.

Written by Stella Goh | 24 July 2019

CFA Level I Financial Reporting and Analysis (Part I)

In these two readings of this chapter, the reporting framework played an important role because it can assist in security valuation and other financial analysis. The most interesting in this chapter is that candidates able to learn on the desirable characteristics for financial reports, elements of financial statements, underlying assumptions and constraints of financial reporting. The readings as we will have a discussion later will be include of conceptual objectives of financial reporting standards, parties involved in standard-setting processes, and how the financial reporting standards are converging into one global set of rules.


Reading 21 Financial Statement Analysis: An Introduction

In this reading, candidates can understand more on financial statement analysis. Financial statement analysis is a process used by financial analysts to examine the financial information of a company such as annual reports, historical and projected profitability, cash flow, and risk to make a decision or recommendation whether to invest in either equity market. Investors who invest in the equity market will concern more on the company’s ability to pay a dividend, and the share prices have the potential to increase in the future.

Besides, the role of the financial position statement, comprehensive income statement, change of equity statement, and cash flows statement is discussed in this reading. Candidates must understand all of these very well because most of them are used to indicate what is the current position of a company, what is the performance for the company over a period, and as additional information regarding what are the changes in company’s current situation. Moreover, the objective of audits for financial statements, types of audit reports, the importance of adequate internal controls, and supplementary information which include with disclosure of accounting policies, methods and estimate, management’s commentary will be discussed in this reading together with some examples provided.


Reading 22 Financial Reporting Standards

In this reading, it will be more focuses on the objectives, importance and the framework of Financial Reporting Standards. In Malaysia, the Financial Reporting framework served as a guideline for all the registered companies to prepare their financial statements. For examples, it used to determine the types and amount of information that must be disclosed to investors and creditors to help them make informed decisions. The statements prepared by the companies must be by the approved accounting standards which have been set forth by the Malaysian Accounting Standard Board (MASB).

While for foreign companies, there will be some differences compare to local companies in Malaysia. The foreign companies which listed in the Malaysia Stock Exchange can prepare their financial reports by the internationally recognised accounting standards, which are known as International Financial Reporting Standards (IFRS). Besides, the qualitative characteristics, constraints and assumptions for preparing financial statements, and the general requirements for financial statements of IFRS also will be discussed more in this reading together with some examples provided. International Financial Reporting Standards (IFRS) is a set of accounting standard developed by an independent, non-profit organisation known as the International Accounting Standards Board’s conceptual framework (IASB). By adopting a single set of universal rules will help to simplify the accounting procedure which means that the company is allowed to use one reporting language that can be interpreted from company to company or from country to country. IFRS is also designed to maintain credibility and transparency in the financial world.

Moreover, candidates are also able to learn on the differences between the concepts of financial reporting standards under IFRS and US Generally Accepted Accounting Principles (US GAAP) reporting system. Generally Accepted Accounting Principles (GAAP) represent the accounting framework such as accounting rules, principles, standards and procedures practices followed by public traded companies in the United States as guidance to compile their financial statements. Financial Accounting Standard Board primarily sets them (FASB), a private organisation of accounting professionals, the Securities and Exchange Commission (SEC), and a US government agency. In summary, US GAAP is more focuses on rule-based, while IFRS is more focuses on general principles-based.

Last but not least, candidates are also able to learn on how to describe roles and attributes of financial reporting standard-setting bodies and regulatory authorities in establishing and enforcing the reporting standards and describe the part of Internal Organization of Security Commission. The status of global convergence of accounting standards and ongoing barriers to developing one universally accepted set of financial reporting standards, the implications for economic analysis of differing the financial reporting systems and the importance of monitoring developments in financial reporting standards also will be discussed in this reading together with some examples provided.



In conclusion, the readings in this chapter are quite essential and it may difficult for those who do not have accounting knowledge to understand especially the International Financial Reporting Standards (IFRS) versus Generally Accepted Accounting Principles (US GAAP). For the different readings that include in Financial Reporting and Analysis, we will discuss in the next coming articles which I will categorise it as Financial Reporting and Analysis (Part II).

Written by Stella Goh | 17 July 2019

CFA Level I Microeconomics and Macroeconomics (Part II)

As discussed earlier in my previous Article of “CFA Level I Microeconomics and Macroeconomics (Part I)”, I believe that all of you have a better understanding on what reading 14 to reading 17 are regarding about in this topic. Today, I would like to continue to talk about what content we can learn from reading 18 until reading 20 on the topic of Microeconomics and Macroeconomics.

Reading 18 Monetary and Fiscal Policy

In this reading, candidates can learn on the comparison between monetary policy versus fiscal policy and the ways to determine whether the monetary policy is expansionary or contractionary. Monetary policy is an action consists with the process of drafting, announcing, and implementing the plans which taken by the central bank, currency board, or other competent authority of a country to control the quantity of money supply and interest rate in the economy. There are three objectives of monetary policies such as controlling inflation, reduce unemployment, and to promote moderate long-term interest rates.

Fiscal policy is generally focused on the estimation of taxation and government spending, which will influence the economic conditions such as demand for goods and services, employment, inflation and economic growth. The objective of fiscal policy is to create a healthy economic of growth. Both the monetary and fiscal policies are used to accelerate growth when an economy starts to slow down, moderate growth or inflation is stable and low.

Besides, in this reading, candidates can also have a better understanding on the functions of money, creation process of money, theories of demand and supply of money, tools used to implement monetary policy, monetary transmission mechanism, Fisher effects, differences between the use of inflation, interest rates, and exchange rates, limitation of monetary policy and so on. A summary and practice problems will conclude the readings.

Reading 19 Internal Trade and Capital Flows

In this reading, candidates can have a better understanding of the framework of analysing the patterns and trends in the international trade, capital flows and their economic implications. International trade is referring to the financial transactions which used to exchange the products and services between foreign countries across the international borders. It allows firms to compete in the global market and employ competitive pricing in their products and services. When there are more and more products available in the market, consumers will meet their needs and satisfy their wants. As a result, the national economy will grow as the exchange of goods and services such as imports or exports are increasing. Thus, the balances of international payments will increase, and it can be a potent driver for sustained GDP growth and improve the standard living in a country.

Besides, from this reading, candidates are also able to know what are the advantages of trading blocs, conventional markets, economic unions, and even able to understand what decisions made by the consumers, firms and governments that can affect the balance of payments. However, the most exciting thing in this topic is candidates can learn on such as how to distinguish between the absolute and comparative advantages, gross domestic product versus gross national product, types of trades, capital restrictions, Richardian and Hecksher-Ohlin Models of trade, objectives of capital restrictions imposed by the government. Moreover, the functions and purposes of international organisations that facilitate trade, which including the World Bank, the International Monetary Fund, and World Trade Organization are also discussed in this reading together with some examples provided.

Reading 20 Currency Exchange Rates

In the last reading of this topic, you can see there are more discussions on the basic concept and terminology of the exchange rates. Candidates are also able to know who the major players are, how they conduct their business, and how they respond to the changes in exchange rates. Exchange rates represent the price of one currency in terms of another currency, which will be used all over the international market. Additionally, these rates can either be floating or fixed. Floating exchange rates are decided by the mechanism of the market demand and supply, whereas the central banks of a country decide the fixed exchange rates. The most crucial thing in this reading are candidates have to take note that the convention used in various foreign markets around the world because they can vary widely. Sometimes, the exchange rates quoted in term of the domestic currency, but sometimes they will be quoted oppositely.

Besides, candidates are also able to learn on such as what are the differences between nominal rates versus real exchange rates, spot rates versus forward exchange rates, forward discount versus forward premium, currency cross rate, functions and participants in the foreign market. Last but not least, the exchange rate regimes, forward quotations expressed on point basis or in percentage terms into outright forward quotation, effects of exchange rates on countries’ international trade and capital flows, the arbitrage relationship between spot rates, forward rates and interest rates will be discussed in this reading together with some of the examples provided in the textbook.


In conclusion, candidates must be able to demonstrate the knowledge of microeconomics and macroeconomic principles. In Part II, we can see that the session begins with the discussion on the function of monetary and fiscal policy used by central banks and governments. After that, international trade and capital flows have been discussed together with the relationship between the different types of flows and the advantages of trade to trade partners. At the end of the session, it concludes with an overview of currency market fundamental and the foreign exchange risk in the operations and investment in the global market. It is important that the candidates must be familiar with the material covered in this topic since this topic carry a quite higher percentage of marks in the exam.

Written by Stella Goh | 11 July 2019

CFA Level I Microeconomics and Macroeconomics (Part I)

Economics is a social science which studied the production, distribution, and consumption of goods and services which divided into two broad areas such as Microeconomics and Macroeconomics. Microeconomics is a study that focuses on an individual’s decision making on resources allocation to satisfy their needs and wants within the economy, such as households, workers, and business. The main subjects in Microeconomics include the theory of demand, the theory of the firm, demand for labour and other factors of productions.

While for macroeconomics, it studied the behaviour and performance of the economy as a whole. For examples, macroeconomics analyses the aggregate changes in the economy such as unemployment, growth of production, gross domestic products (GDP), inflation, deficits, level of exports and imports. Both of the microeconomics and macroeconomics are interdependent and complement.

Reading 14 Topics in Demand and Supply Analysis

In this reading, candidates must able to familiar with the basic concepts of demand and supply. Demand is referring to the consumer’s desire to purchase the goods and services and willingness to pay the price for specific products or services. When the cost of goods increases, the quantity demand of the goods will decreasing, vice versa. Besides, candidates are also able to learn several theories such as Marginal Utility Analysis, Indifference Curve Analysis and Revealed Preference Theory. While for Supply is referring to the willingness and ability of the producers to supply goods and services to the market. Supply is positively related to the price given because the higher the rate, the people more willing to provide more, which may help to increase the revenue and profits. Both supply and demand are interrelated; from this reading, candidates can explore more on how the buyers and sellers interact to determine the transactions of the prices and quantities.

Besides, candidates are also able to learn on how to differentiate between Substitution effect versus Income effects, Normal goods versus Inferior Goods, Breakeven versus Shut down points of productions, etc. The ways to interpret the price, income, cross-price elasticity of demand, factors that affect each measure, how the economies of scale and diseconomies of scale affect the cost will be discussed in the textbook provided with the examples.

Reading 15 The Firm and Market Structure 

In this reading, candidates can have a better understanding of market structure. Market structure is essential because an individual can learn the skills of analysing issues such as the firm’s pricing of its products, which will bring potential to increase profitability. In the highly competitive market, long-run profits will be driven down by the forces of competition. While for the less competitive markets, large profits are possible even in the long run. Therefore, by understanding the forces behind the market structures can helps financial analysts to determine the short-term and long-term prospects of a firm.

Besides, candidates are also able to learn on how to analyse the demand, supply, optimal price, output and factors that can affect the long-run equilibrium for perfect competition, monopolistic competition, oligopoly and monopoly. The relationship between the price, marginal revenue, marginal costs, economic profits, and the elasticity of demand under each market structure, also will be discussed in the textbook, together with some examples.

Reading 16 Aggregate Output, Prices, and Economic Growth

In reading 16, candidates will have a better understanding of Gross Domestic Product (GDP) and related measures of domestic output and income. Gross Domestic Product (GDP) is a primary indicator which used to gauge the economic health of a country. It measures the aggregate income earned by all households, companies, governments, the flow of output and income in the economy. GDP can be determined in different manners, such as an income approach and expenditure approach. In the income approach, GDP is calculated as the total amount earned by the households and companies in the economy. The income approach formula to GDP as follows:-

GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income

Total national income is equal to the sum of all wages plus rents plus interest and profits.

While in the expenditure approach, GDP is calculated as the total amount spent on the goods and services that had been produced in the economy within a given period. The formula of the expenditure approach for GDP is as follow:-

GDP = Gross Private Consumption Expenditures (C) + Gross Private Investment (I) + Government Purchases (G) + Exports (X) – Imports (M)

Besides, candidates are also able to learn on how to distinguish the differences between sum-value added versus the value of final output methods, nominal GDP versus real GDP, GDP deflator, national income, personal income and disposable income. Furthermore, candidates are also able to learn all the relationship between savings, investment, fiscal balance and trade balance from this reading. The types of macroeconomics equilibrium, long-run full employment, short-run recessionary gap, short-run inflationary gap and short-run stagflation also will be discussed in the textbook together with some examples provided.

Reading 17 Understanding the Business Cycle

In this reading, candidates can know more about what are the changes in economic activity, and the factors affect it. For examples, changes in population, technology and capital are the factors that affect the long-term sustainability of economic growth. However, the short-term economic fluctuations can lead by specific factors such as money supply and inflation.

Besides, candidates are also able to learn how to describe the business cycle and its phases. A business cycle is an economic cycle or trade cycle which can be used to describe the rise and fall in the production of the output of goods and services. The business cycle is useful because it can help an investor to make their investment decision. There are four stages in the business cycles such as expansion, peak, contraction and trough. In the textbook for this reading, candidates also can learn how the different of the economics school of thought interprets the business cycle and their recommendations with it.

Last but not least, candidates are also able to know what are the differences between inflation, hyperinflation, disinflation and deflation. The basic concepts concerning about the types of unemployment, construction of indexed used to measure inflation, cost-push inflation versus demand-pull inflation, and a set of economic indicators will be discussed in the textbook together with the examples provided.


In conclusion, the key considerations such as demand and supply, global trade flows, market structure, business cycle, etc are beneficial to help in conducting own investment analysis and economic forecasting. For the other readings that include in Microeconomics and Macroeconomics, we will discuss on the next coming articles which I will be categorised as Microeconomics and Macroeconomics (Part II).

Written by Stella Goh | 2nd July 2019.

CFA Level I: Quantitative Methods (Part II)

As discussed earlier in my previous Article of “CFA Level I Quantitative Methods (Part I)”, I believe that all of you have a better understanding of what reading six until reading 9. Today, I would like to continue to talk about what content we can learn from reading 10 to reading 13 on the topic of Quantitative Methods.

Reading 10 Common Probability Distribution

In this reading, the random variable plays a vital role in making an investment decision. The probability distribution used to specify the probabilities of possible outcomes of a random variable such as price and return. Besides, candidates are also able to learn how to distinguish the difference between the types of variables with their functions. For examples, Discrete uniform random variable, Bernoulli random variables, Binomial random variables, and so on. The types of distributions and their features also will be discussed in this reading, such as Discrete uniform distribution, Binomial distribution, Normal distribution and Lognormal distribution. All of these probabilities distribution will be used extensively in the basic valuation models such as the Black-Scholes-Merton option pricing model, Binomial option pricing model, and the Capital asset pricing model. Besides, candidates must also learn to distinguish between the univariate and a multivariate distribution and explain the role of correlation in the multivariate normal distribution.

At the last part of this reading, it discusses the Monte Carlo simulation. Monte Carlo simulation is a type of computer-based tool for obtaining the information on the multiple options for which no simple pricing formula exists. Usually, it is a technique people used to identify the risk factors associated with the uncertainty and specify the probability distributions in the prediction and forecasting models. From this reading, candidates can know more about the applications, limitations and also the comparison between Monte Carlo simulation and Historical Simulation.

Reading 11 Sampling and Estimation

First of all, in this reading, it focuses more on sample, sampling and estimation. An example is a subset containing the characteristics of a large population. Any statistics that we compute with sample information are only the estimates of the underlying population parameters. The analyst uses the samples such as S&P500 and the Nikkei-Dow Jones Average as valid indicators of the whole population’s behaviour to assess how various the markets from the world are performing.

Sampling is the process of obtaining a sample. Candidates can learn more about what is random sampling, sampling distribution, sampling error, purely random, and stratified random sampling, etc. Besides, candidates are also able to know what is the central limit theorem and its importance, how to interpret the standard error of a sample mean, properties of an estimator, features of Student’s T-Distribution, degree of freedom, time series data, cross-sectional data and so on.

Furthermore, Mean also will be used as a measure of central tendency of random variables, such as return and earnings per share. The central limit theorem and estimation will be used together with other statistical techniques to the financial data to interpret the results to decide what works and what does not work in the investment.

Reading 12 Hypothesis Testing

In this reading, it’s more focusing on the concepts of hypothesis testing.  Candidates able to learn on what is a hypothesis, describe the steps in hypothesis testing, describe and interpret the choice of the null and alternative hypothesis. Hypothesis testing is a systematic way used to select the samples from a group or population with the intent to decide whether a hypothesis will be accepted or not. Besides, it is also a part of the branch of statistics known as statistical inference. The statistical inference can break into two subdivisions, such as estimation and hypothesis testing. The evaluation will be used to address questions while the hypothesis is defined as a statement about one or more population.

In this reading, candidates can also learn on how to distinguish between one-tailed versus two-tailed test of hypotheses, Type I Error versus Type II Error, P-Value, Significance level, and how the significance levels are used in the hypothesis testing.

Reading 13 Technical Analysis

Technical Analysis is a type of security analysis that always used by traders or investors with the price and volume data to make their investment decision. In this reading, candidates can learn on principles of technical analysis, its application, and underlying assumption. Besides, this reading also provides a brief introduction about the field, comparison of technical analysis with other schools, and describes some of the tools used. The uses of trends, support, resistance lines, and changes in polarity are essential in this reading.

Last but not least, common technical analysis indicators such as price-based, momentum, oscillators, sentiment, and flow of funds also will be discussed with some of the examples provided in the textbook. The most exciting content in this subject is the critical tenets of Elliot Wave and the importance of the Fibonacci numbers. Eliot Wave principle is a type of technical analysis which will be used by the traders to analyse the financial market cycles to forecast the market trends by identifying extremes in the investor’s psychology such as high and low in price and other collective factors.


In conclusion, it is essential to know how the standard probability distribution used to describe the behaviour of random variables, what the use of hypothesis testing is, what the coverage of technical analysis is, how to estimate the measures of a population such as mean, standard deviation, etc. All of these are the main content that will be tested in the exam from this reading.

Written by Stella Goh | 26 June 2019

CFA Level I: Quantitative Methods (Part I)

Continued from the previous article, In this topic, candidates can learn how to apply quantitative concepts and techniques in financial analysis and investment decision making. It covers the time value of money, probability, normal distribution, hypothesis testing, descriptive statistics, and so forth. Time value of money and discounted cash flow analysis play as an essential role in this session because they form a basis for cash flow and security valuation. Both of them will be standalone problems or crucial parts problems throughout the curriculum. Besides, candidates are also able to learn the descriptive statistics which will be used for conveying the critical data such as central tendency, location and dispersion are presented. However, all investment forecasts and decision involve uncertainty. Therefore, probability played as conceptual part to quantifying risk and return in the investment decision. (For reading 1 – 5, please refer to the previous article).

Reading 6: Time Value of Money

In this reading, candidates can have a better understanding more on time value of money. Time value of money is the concept that the money available at the current time is worth more than an equal sum in the future. In this reading, candidates can learn three interpretations of interest rates such as the required rate of return, discount rates, or opportunity costs and can know what the components in the interest rate are.  For examples, risk-free rate, inflation, default risk and another risk premium. Besides, candidates are also required to explain an interest rate as the sum of a real risk-free rate and premiums that used to compensate investors for bearing the distinct types of risks. The calculation and interpretation of effective annual rate, given stated of yearly interest rate and frequency of compounding also will be teaching with some examples provided in the textbook.

In this reading, candidates are also able to learn how to demonstrate the use of a timeline in modelling and solve the time value of problems. However, the most critical thing in this reading is that they need to be familiar and comfortable on interpretation and discounting Present Value (PV) and Future Value (FV) of cash flow in the exam. It was due to the logic here applies to many other applications through this area topic. Besides PV and FV, candidates are also able to learn the annuity calculation for an ordinary annuity, annuity due, perpetuities a series of unequal cash flows.

Reading 7: Discounted Cash Flow (DCF)

In this reading, candidates can learn to use the Net Present Value (NPV) and Internal Rate of Return (IRR) for comparing projects with different payoffs to determine whether the company should invest into the plans or not. Net Present Value (NPV) of a project is the difference between the sum of all cash inflows and the amount of all cash outflows, discounted using by a required rate of return over a period of time. A positive NPV indicates that the project is making money for the company; while for negative NPV shows that the plan of the company is losing money. Therefore, the company should consider the investment with positive NPV because it is profitable.

Besides, candidates are also able to know what the advantages and disadvantages are by using NPV compares to IRR. The NPV and IRR rule also will be discussed in this reading, together with the problems associated with IRR rule. However, there are several essential types of returns you also need to know such as Holding Period Return (HPR), Money Weighted-Rate of Return (MWRR), and Time Weighted Rate of Return (TWRR) to measure and evaluate the performance of the portfolio. Besides, candidates are also able to learn bank discount yield, effective annual yield, money market yield and the relationships between them.

Reading 8: Statistical Concepts and Market Returns

In this reading, candidates need to learn on how to measure the central tendency, and dispersion such as the population mean, the sample means, arithmetic mean, weighted average, geometric mean, harmonic mean, median mean, mode, etc. Besides, they also can learn how to distinguish the difference between descriptive statistics and inferential statistics or variance and standard deviation, between a population and sample, and among the types of measurement scales.

Candidates also should know what parameter, sample statistic, frequency distribution, relative frequencies and cumulative relative frequencies are. Besides, they also must learn how to calculate and interpret the quartiles, quintiles, deciles and percentiles. The interpretation of coefficient of variation, Sharpe ratio, and the meaning of positively or negatively skewed of return distribution also will be discussed in this reading with examples provided.

Reading 9: Probability Concepts

Probability concepts will be used to predict the outcomes when faced with uncertainty.  In this reading, candidates can learn on how to define a random variable, a consequence of an event, mutually exclusive events, and exhaustive events. Besides, there are many types of probabilities such as the conditional probability, unconditional probability, multiplication rule of probability, addition rule of probability, total probability rule, joint probability rule, can find out in this reading.

Moreover, candidates also must understand how to use a Tree Diagram of probability to represent an investment problem. By calculating the chances can be hard, because sometimes we add them, sometimes we multiply them, and often it is hard to figure out what to do. By using the tree diagram, candidates can find it easy to find a probability. Bayes’ formula is also essential because it applies to compute conditional probability or posterior probability. Last but not least, candidates are also able to learn to calculate the covariance and correlation, understand more about the properties of correlation and how it affects the risks. Besides covariance and correlation, they also must know how to interpret the expected value, variance, and standard deviation of a random variable and returns on the portfolio.


In conclusion, candidates must be familiar with the formulas in this chapter because the logic here may apply to many other applications in other topics. For the different readings that include in Quantitative Methods, we will discuss on the next coming articles which I categorised it as Quantitative Method (Part II).

Written by Stella Goh | 12 June 2019

CFA Level I: Ethical and Professional Standards

Ethical and Professional Standards have a very high value on ethics in CFA for all three levels and consider as a fundamental value and essential, which used to help in achieving the mission that can lead in profession globally by promoting the highest standard of ethics, educations and professional excellence for the benefit of society.

In this topic, the questions in an exam may provide you with a particular situation and require you to judge whether the cases have violated any part of the Code of Ethics or Standards of Professional Conduct. Candidates must know the ideas and concept of the importance of ethical behaviour in the investment industry and the ways to apply the Code of Ethics into ethical decision making.
There are five readings on this topic. Let’s look at what can we learn from the five passages.

Reading 1 Ethics and Trust in the Investment Profession

In this reading, we can know the overview of the importance of ethics for investment professionals. Ethics encompass a set of rules and moral principles of conduct that guide our behaviour. Candidates can learn the introduction of ethics, identify the challenges face to the ethical practices, and able to describe the role of Code of Ethics in defining a profession. The problems of ethical behavioural may include one’s being too confident in their morality, underestimate the effect of situational influences, and focusing too much on the immediate rather than long-term outcomes or consequences of a decision.

Besides learning how to describe the needs for high ethical standards in the investment industry, candidates are also able to distinguish the difference between moral and legal standards. Code of Ethics helps to foster the confidence of the public with the use of their specialised skills and knowledge to serve on their clients to advance their profession.

Reading 2 Code of Ethics and Standards of Professional Conduct

In this reading, candidates can learn more about the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of Code and Standard. The most crucial part in this section is that candidates must understand the six components of Code and Ethics and 7 Standards of Professional Conduct. The Code of Ethics and Standard of Professional Conduct served as an ethical benchmark for investment professionals around the world. It is essential that a candidate must understand more on the moral responsibilities which are required by the Code and Standard, including with the subsections of each of the standard.

Reading 3 Guidance for Standards of Professional Conduct

The Standard of Professional Conduct is the heart of ethics content in CFA exam. In this reading, candidates can know how to apply the Code of Ethics and Standard of Professional Conduct to the ethical dilemmas which can happen in days-to-days professional activities. In the CFA textbook Level I of this reading, there are few real-world examples of situations and guidance which can help candidates to have a better understanding for each sub-sections for the 7 types of Standards of Professional Conduct.

Besides candidates can learn on how to distinguish the conduct that conforms to the Code and Standards and behaviour that may violate the Code and Standards, they will also be able to learn on to recommend the practices and procedures designed to prevent the violations of the Code of Ethics and Standard of Professional Conduct.

Reading 4 Introduction to the Global Investment Performance Standards (GIPS)

The objective of this reading is to ensure the Level I candidates can approach the assigned sections of Global Investment Performance Standards (GIPS). GIPS played an essential role because through the compliance with the GIPS; it is to assure the firm’s historical results are present consistently and fairly. From this reading, candidates can understand what the reasons of Global Investment Performance Standards (GIPS) are being created, what parties can claim the GIPS standards compliance and who will be benefited and served by the standards.

Besides, candidates are also able to understand what is the construction and critical notions of the composites in the performance reporting preview the structure of the standards and even able to learn on how to explain on the requirements for verification.

Reading 5 The GIPS Standards

In the last reading of this chapter, candidates can learn the key features of the Global Investment Performance Standards (GIPS) and the fundamental compliance. There is nine significant sections of GIPS will be discussed in this reading. Besides, candidates are also able to learn the scope of the GIPS Standards concerning the investment firm’s definition and no further on what is the requirement a firm should meet before claim the GIPS compliance. For examples, GIPS reporting standards require the firms to publish 5 years of investment results and so on to claim the GIPS compliance.

The most critical part in this reading is the candidates can learn on how is the GIPS standards are implemented in the countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulation conflict.


In conclusion, all CFA members and candidates are obliged to obey by the provision of the Code of Ethics and Standards of Professional Conduct. Any violations of the Code of Ethics or Standards of Professional Conduct may result in appropriate disciplinary sanctions including, but not limited to, the exclusion from the CFA Program or the revocation of the CFA designation.

Written by Stell Goh | 30 May 2019.

Site last updated August 19, 2019 @ 6:52 am