This study session consists of three parts. On completion of the video, selected readings and structured assessment, 2 hours of structured CPD will automatically be entered into your CPD log.
1. Company Analysis - Video
This study session takes a look at companies to consider how an analyst can check that the company is robust for the future. Questions addressed by the practitioners in this video include:
- Can you define what makes a 'quality' company?
- Which characteristics in a company do you idenitfy as 'key'?
- How important is it to understand a company's corporate governance?
- Are there characteristics of individual company's that are related to poor accounting disclosure?
2. Company Analysis - Selected Readings
Four external readings have been selected in this area:
'Corporate Governance and Value Creation – Analysis of the Corporate Governance System' (Page, J-P)
Corporate governance is considered here from the perspective of value creation for investors. By looking in detail at the economic nature of what a company is, as they exist under different economic systems, this reading aims to get to the bottom of how value in companies arises.
'Calculating Return on Invested Capital' (Mauboussin, M.; Callahan, D.)
Return on Invested Capital (ROIC), showing a company’s ability to increase the value of any capital invested is a key measure of success for any company. For the analyst however there are a number of practical difficulties to overcome when calculating ROIC. This reading details the inputs into the ROIC model and the obstacles facing analysts who must attain consistency of input together with meaningful outputs.
'The Equity Risk Premium' (Ibbotson, Roger)
The inconsistent treatment of the equity risk premium (ERP) by investors, commentators and analysts is addressed in this article. The author establishes the appropriate terminology to use when using the equity risk premium and considers the meaning it has for those that use it.
'Financial Shenanigans: Detecting Accounting Gimmicks That Destroy Investments' (Schilit, M. Howard)
This spirited engagement with those corporations who attempt to pull the wool over the eyes of investors by manipulating their financial reports identifies many of the key ‘financial shenanigans commonly employed. Broadly dividing seven of the most commonly used tactics into two sections, the author details how companies may attempt to exaggerate profits during a period to appear more successful to investors or alternatively to suggest lower profits in an effort to reduce their taxes.
3. Company Analysis - Structured Assessment
The assessment consists of 10 questions and requires a pass score of 70% to be obtained. The test must be passed in the first two attempts in order to successfully complete this study session and for the learning to log as structured learning.