CFA Level I Financial Reporting and Analysis (Part II)

By Stella Goh – Market Data Analyst | 24 July 2019

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.

CFA Level I Financial Reporting and Analysis (Part I)

By Stella Goh – Market Data Analyst | 17 July 2019

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).

CFA Level I Microeconomics and Macroeconomics (Part II)

By Stella Goh – Market Data Analyst | 11 July 2019

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.

CFA Level I Microeconomics and Macroeconomics (Part I)

By Stella Goh – Market Data Analyst | 2 July 2019

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).

CFA Level I: Quantitative Methods (Part II)

By Stella Goh – Market Data Analyst | 26 June 2019

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.

CFA Level I: Quantitative Methods (Part I)

By Stella Goh – Market Data Analyst | 12 June 2019

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).

CFA Level I: Ethical and Professional Standards

By Stella Goh – Market Data Analyst | 30 May 2019

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.

Reasons to Become a Chartered Financial Analyst (CFA)

By Stella Goh – Market Data Analyst | 15 May 2019

There are more than 100,000 CFA charter holders in over 135 countries and increase of demand worldwide for the CFA Program, the charter has become global professional investment credential which allows the student to practice across the international boundaries. The recognition for this charter is base on the candidate’s knowledge and professional standard embodies in the program makes the CFA designation as a mark of global distinction of investment professionals worldwide. CFA Charter is recognised and rewarded by employers, respected by regulators and investment institutions.

The Breadth of Knowledge and Real-World Expertise

By studying the CFA Program, you can explore more knowledge on investment combined with comprehensive global views, and up-to-date practical skills allow the investment professionals expertise in quantitative methods, economics, financial reporting, investment analysis, portfolio management, etc. The analytical skills and the knowledge learnt from the CFA Program assist them in analysing the risks and rewards of a variety of investment types to address client-specific investment needs throughout their career which they can manage the investment anywhere due to CFA has mastered the Global Body of Investment Knowledge (GBIK). Since the practising of CFA charter holders around the world also practising on the evolution of Global Body of Investment Knowledge, it is standardised, consistent and based on knowledge relevant.

According to the CFA Institute, the top 10 employers for Chartered Financial Analyst are JP Morgan Chase, PricewaterhouseCoopers, HSBC, Bank of America, Merrill Lynch, UBS, Ernst & Young. RBC, Citigroup, Morgan Stanley and Wells Fargo.

Career Advancement Opportunities

The Chartered Financial Analyst (CFA) certification is almost a guarantee of advancement in an investment career path and to boost financial credentials. Besides, CFA Charter is also known as the toughest exam with an average passing rate of 42% over the ten years. Most of the people in the industry know that to become a CFA charter holder, one requires a lot of time for studying and one must have discipline enough to manage their time for their studies. There is also a global network of over 135,000 investment professionals in the world implies that there is an impressive club to join after becoming a CFA Institute member for the networking opportunities. After acquiring the CFA Charter, you can find a variety of investment-related jobs such as investment analyst, portfolio manager, risk analyst and so on.  Let us look at some of the few examples of employment job that charter can apply.

a) Research Analyst

Research analyst is a professional who serves as investigators to analyse the data such as financial information, performance trends, economic trends and news, political climate, and specific development of the companies for future performance. Sometimes, the research analyst also referred to as an equity research analyst, investment analyst or security analyst. They synthesise their analysis of the data into the research report on their methodology for investors client conclude with recommendations to advise them on whether to buy, sell or hold on specific stocks.

b) Financial Analyst

Financial Analyst is a professional who examines more on economic data and use their findings to help companies make a business decision. They use spreadsheet and statistical software package to analyse financial data, spot trends to develop a forecast. Some of the financial analysts will collect the industry data such as balance sheet, income statement, merger acquisition history and economic news for their clients. The financial ratios will be calculated from the data that they have gathered to help the client to read the bottom line of the company. However, not all of the financial analyst work in the stock or bond market. Some companies might hire a financial analyst to help them determine the strength and weakness lie in their business and make profit or losses forecast.

c) Portfolio Manager

Portfolio manager also can be referred to as an investment manager, wealth manager, asset manager and financial manager. The primary responsibility of a portfolio manager is to create and manage asset allocations for some clients. They spend a lot of their days working together with analysts, researchers, and clients based on the current market events, business news, and financial market. A portfolio manager with expert insight and experience can make an informed decision for their clients. They are also responsible for meeting with investors to have an explanation on their research, strategy and rationale for the arrangements.

In most of the cases, they follow a predetermined strategy of investment, dictated by investment policy statements (IPS), to achieve a client investment objective. Some of the portfolio managers may craft the investment packages supplied to the clients, while some of them manage the client expectation and transaction. They should buy and sell securities in an investor’s account to maintain a specific investment strategy or objective over time.

Based on the June 2018 CFA Program Candidate Survey from CFA Institute official website, the majority of jobs of employed candidates work as a research analyst, investment analyst and quantitative analyst which consist of 12%. 9% of candidates work as an accountant or auditor, 8% of candidate work as a corporate financial analyst and 7% of candidates work as a consultant, and 5% of candidates work as risk analyst or manager, relationship manager, account manager, credit analyst, and portfolio manager each.


By acquiring the CFA designation can help to distinguish the charter holders from other counterparts in the eyes of professionals and investors. As a result, you can expect your career to benefit more flexibility and higher compensation compared to if you do not have the CFA Charter.

What Should You Know Before Register for Chartered Financial Analyst (CFA)

By Stella Goh – Market Data Analyst | 8 May 2019

What is Chartered Financial Analyst (CFA)

Chartered Financial Analyst (CFA) is a globally-recognised professional designation offered to finance and investment professional, administered and awarded by American-based CFA Institute. This program provides the most reliable foundation in investment, analysis and real-world portfolio management skills along with the practical knowledge you need in the industry.

Candidates who qualify in CFA exams will be designated with the CFA credential. Candidates are required to pass all three levels of exams covering areas such as Ethics, Quantitative Methods, Economics, Financial Reporting and Analysis, Corporate finance, Portfolio management, Equity investments, Fixed income, Derivatives and Alternative Investments. This credential is mostly sought after by finance and investment professionals looking forward towards building a career in investment banking, financial management, financial analysis on stocks, derivatives and so on.

Entry Requirement

First of all, before you register as a CFA candidate, you need to fulfil specific requirements. The CFA Institute requires that every CFA Program candidate must have a valid international travel passport to register or sit for the exam. All of the candidates must be prepared to take an exam in English because CFA Program exams are only in English. CFA charter holders, regular members, affiliate members, and candidate in CFA Programs must complete a Professional Conduct Statement form to attest that they comply with their requirement.

Besides, the candidate also must have either one of these:-

a) Have a bachelor’s (or equivalent) degree, OR

If you are not sure that your program is compatible with the CFA program, you can have enquiries from your college or university.

b) Be in the final year of a bachelor’s degree program, OR

If you are a student in final year program of your degree, you can also register for the Level 1 Exam, but you must complete your degree program before registering for CFA level II.

c) Professional Experiences

If you have a combination of professional work experience and education with a total of at least four years, you are also eligible to register for CFA Programs.

Practical Work Experience

CFA candidate must take note that they must have a minimum of four years which equivalent to 48 months of experience in evaluating or applying financial, economic, and statistical data as a part of investment decision making the process, supervising people who conduct or teaching activities. Almost 50% of your time must be spent directly in the investment decision-making process or producing a work product. They must work full time before, during or after they have participated in the CFA Program.

Exam Structure

To acquire the Chartered Financial Analyst, each of the candidates required to complete three levels of the exam.

a) CFA Level I

Tier I exam consist of 240 multiple choice questions separate into two sessions which are morning and afternoon. Each session is covering 120 multiple choice question with a duration of 3 hours per session.

b) CFA Level II

For the Level 2 exam, there are 18 sets of six multiple-choice questions, 3 sets with four multiple-choice questions, a total of 21 sets. It is also broke into two sessions, morning and afternoon, covering 60 sets of multiple choice question with a duration of 3 hours per session.

c) CFA Level III

For the morning session, it includes of constructed response (essay) which will be between 8 and 12 questions with several subparts. While for the afternoon session, there have ten sets of a subject with a total of 6 questions each part.

Percentages in CFA Exam Topic Area

Topic Area

Level I (%)

Level II (%)

Level III (%)

Ethical & Professional Standards


10 – 15

10 – 15

Quantitative Methods


5 – 10




5 – 10

5 – 10

Financial Reporting & Analysis


10 – 15


Corporate Finance


5 – 10


Portfolio Management


5 – 15

35 – 40

Equity Investment


10 – 15

10 – 15

Fixed Income


10 – 20

15 – 20



5 – 10

5 – 10

Alternative Investment


5 – 10

5 – 10


100 %

100 %

100 %

Based on the illustration above, we can say that for CFA Level I, the Ethical & Professional Standards and Financial Reporting & Analysis consist of the highest marks compared to other subjects. While for CFA Level II, Ethical & Professional Standards, Financial Reporting & Analysis, Portfolio Management, Equity Investment, and Fixed Income may be the highest marks among other subjects. While for CFA Level III, the portfolio management may consist of the most top scores among the different topic.

Passing Rate

Based on the information from CFA Institute’s website, the passing rate for three levels of the CFA exams is not high. In June 2018 exam, the passing rate for Level I is 43%, Level II is 45%, and Level III is 56%. While for December 2018 exam the Level 1 passing rate is 45%.

Passing the CFA Program, one must have a solid discipline and an extensive amount of studying. They need to arrange their time very carefully because each exam typically required you to put hard work for more than 300 hours. With the given of the considerable amount of time that must spend on study, many candidates deterred from continuing the CFA Program after failing the first levels.

Each candidate who sits for the CFA Program exam will be provided with exam results and detailed information on their performance. After candidates receive their results, they can start to register for the next exam. Candidates who did not pass the exam can re-take the exam at a later date. They can take as much time as they need before registering for the next exam. To pass a CFA Exam, candidates must score a minimum score of 70% for each of the subjects.

Exam Fees

  Early Registration Standard Registration Late Registration
Program Enrolment (New Candidate Only)

USD 450

June 2019 Exam

Ended Sep 2018

Ended Feb 2019

Ended Mar 2019

December 2019 Exam

Ended Mar 2019

Ended Aug 2019

Ended Sep 2019

Exam Registration
(All Candidates)

USD 650

USD 950

USD 1,380

* Program fees are subject to change.

For the one who is the first-time register for CFA exam, you are required to pay a one-time program enrolment fees which are about USD450 together with the exam fees of USD650. After you have done your CFA Level I, you need to register for CFA Level II; you only need to pay USD650 for Level II if you register the exam earlier. The earlier you register for, the cheaper the fees which you can refer to the table as above.

The program fees are subject to change. However, the exam fees are in US Dollar, when you want to make the payment, it will base on the current currency exchange rate in the market. The costs of the exam fees are including the e-book for you to study. For the hardcopy of the original textbook, you need to purchase when you are making payment for your exam fees.

Self- Studying / Tuition Centre

You can choose to self-study in the house or study in a tuition centre across the country. There are few tuition centres provide CFA courses such as Noesis Exed, Kasturi, TARUC, Sunway College, etc. Different tuition centre may charge a varying fee. Noesis Exed charges a registration fee of RM500 in one time off, course fees plus revision course fees is around RM6,500 per level. However, they offer a discount for a student or ex-student from TAURC, RMIT Monash University, Help University, UiTM, UTAR & Sunway University, etc. If you are choosing self-study and currently have a full-time job, you need to manage your time very well. Sometimes, when the exam is around the corner, you need to take leaves to study at home.


Based on my experience, the CFA exams are challenging, the exam questions are tricky, but if you spent your efforts to study, you might pass the exams by studying over 300 hours by utilising all the alternative prep materials, do a lot of practising questions as possible. Companies across the finance industry recognise the CFA Program. CFA candidates, who completed all of the exams, can advance their investment careers through the knowledge they gain and their access to an extensive and impressive network of CFA professionals.

Understanding on Types of Orders in Trading Platform

By Stella Goh – Market Data Analyst | 3 May 2019

At most of the time, brokers and dealers will help to arrange trades by issuing the orders after communicate with buyers and sellers. In the stock market, there are bid price and ask price. Usually, investors or traders buy the stock at the asking price and sell stock at the bid price in the stock market.

In the stock market, the asking price is always higher than the bid price. The highest the bid price in the market is the best bid, while the lowest ask prices in the market are the best offer. Before you are buying or selling the stocks, you must know the different types of orders.

Let’s look at the types of orders in the market.

Market Order

The market order is an order to buy or sell the order immediately at the best available price. This type takes the execution directly but may not able to acquire the stock at the desired pricing. It may be filled in at a more higher price. Thus you may get more expensive share than anticipated if no willing seller to sell to you at the market price. For example, the market’s ask price for Stock ABC’s is RM3.00, and you may want to buy this Stock ABC immediately at this price. RM3.00 is the current price assuming that the market is open at the moment.

Limit Order

A limit order is an order to buy or sell a security at a specified price. There are two types of limit orders in the market, buy limit order and sell limit order. Limit orders do not execute if the limit price on a buy order is too low, or the limit price on a sell order is too high.

The buy limit order is an order to buy at lower than current market price and only will be executed when asking price drop to the preset level. For example, the current ask price for Stock ABC is RM5. If you wish to buy ABC Stock at RM4, submit a buy limit order of RM4 or lower. Then wait for the price to drop to RM4, the order will perform. If the price never drops to RM4 or lower, the order will not fulfil.

A sell limit order is an order to sell at a higher level than the current market price at a specified price. For example, the current ask price for Stock XYZ is RM12. If the investors or traders wanted to sell Stock XYZ at RM15 which is higher than the current market price, they need to submit a sell limit order at RM15. After that, they need to wait for the current price of the Stock XYZ rises until RM15 or higher; the order only can be executed. However, if the price never rises to RM15 or higher, that means the investors or traders will never sell.

Stop Order

Stop order is an order use to buy or sell a security once the price of the security reached a specified price which is also known as the stop price. There are two types of stop orders such as Sell stop and Buy Stop.

Sell stop order is an order placed below the current price, once it hit the program will execute sell. For examples, the investors or traders bought a stock at RM20 and may want to sell the stock if the stock price falls below RM10 to limit losses. Therefore, the investors or traders can submit a Good-Till-Cancelled Sell Stop at RM10 level. If the market price of the stock falls to or below RM10, the market order becomes valid, and it should immediately fill the order.

Stop buy order is an order which traders will use to buy at higher than the current market price. For example, the Stock EFG currently is traded for RM40. So you can place a Good-Till-Cancelled buy stop order on the stock for RM50. The reason why not use market order is some trader would like to see the stock reach specific price first for confirmation before buying the stock. Once the stock arrives RM50, their order takes effects.  Good-till-canceled is an order that investors or traders may place to buy or sell a security that remains active until the order is filled or the investor cancels it.


In conclusion, understand and familiar with the trading platform to execute transaction should be able to help trader/investor on advantages to better manage the entry and exit point for their investment.

Site last updated July 6, 2020 @ 3:54 am