Done Reading 40 from CFAI Textbook

Finally achieved this task after not studying for a week. It probably took me around 2-3 hours to re-read everything in Reading 40 from the CFAI Curriculum and the Schweser notes combined. I had to go back to Schweser for some parts because the details in the Curriculum really bogged me down

The main trouble that I had was with the first LOS that differentiates the accounting rules betn IASB, GAAP and other accounting rules all over the world for common accounting treatments of Consolidation, Business Combination, Joint Ventures etc. The curriculum has more details on this part. I would say, for everything else, Schweser does a good job.

Important Formulae:

1. P/E (intrinsic)= Tangible P/E + Franchise P/E

= 1/r + (FF*G)

Franchise Factor (FF)= (ROE-r)/(ROE*r)

Growth Factor(G)= g/(g-r)

It is necessary for retention ratio (b)>0 and ROE>r for a company to have franchise P/E.

2. P/E= 1/(real interest rate+ (1-inflation flow through rate)(inflation rate))

Even if inflation rate is high, if all of it is absorbed by the inflation flow through rate, then the P/E is unaffected. Otherwise, the higher the inflation rate, the lower the P/E ratio.

The entire chapter spans more than 60 pages in the Official Curriculum…it’s long and boring. I’m yet to work out the chapter end problems. I’ll make sure that I do it tomorrow and complete Reading 41 too.

Reading 41 talks about Competitive Strategy and should be more interesting to read, because I just completed a course in management that’s based on this stuff.

I need to remind myself to stop wasting time on my other blog, Time and Again, and by watching Heroes (my new found fascination).

Hope all of you are studying hard. Please keep commenting and motivating me too. I think I’m falling behind.