18 days left & counting

As I completed the Schweser Vol 1 Exam 1 AM, I noticed that I am frequently trick by double negative questions such as

"... least likely more problematic"

Also am still grasping the effects on the cashflows & ratios for Finance type lease and operating lease for lessee and lessor.

Schweser Exam Vol. 1 Exam 1 AM score

I scored 77.5% over 120 questions. Will revised tonight the weak subjects and hopefully can do better tomorrow.

19 days left & counting

Previously I did the 60 samples questions from CFAI.

I noticed it tested on normalization of P/E with company size adjustments using BVPS. The Schweser Notes did not provide a detail example on how to do this. Had to refer to the main CFAI text. It looks to me that there are cases which the notes did not cover. I think I better look through the text thoroughly again.

Another area is the Working Capital for LOS 46.d. The question asked about the mismatching strategy but the Schweser Notes offer nothing on this area.

Still on another area is pertaining to the LOS 9.g which the latest errata from CFAI says that "construct and interpret a confidence level interval for a normally distributed random variable." has been deleted. Yet the sample question asked about the interpretation of the confidence level for normal distribution. How like this?

One frustrating thing about the sample questions is not able to view the question again after taking it. I can have all the answers and explanationatory notes but cannot review the question again. So it is almost as good as rubbish. Fortunately while I was taking the sample question test, I noted down which questions are problematic for me.

20 days left & counting

I just completed the CFAI's 60 sample questions. I scored 83%!! Yeah!

21 days left & counting

22 days left & counting

30 days Countdown to CFA Level 1

There are 30 days left to the CFA Level 1 exam. I have been studying everyday. I think I'll pass but I am having problem retaining memory. Thank goodness that I don't have much work to do since we are having one of the worst economic crisis. Singapore's GDP growth is projected to be -10% this year - looks like the economy is more like an emerging market country than a developed one!

I did found that ethics to be quite easy to pass. Just need to read the readings and notes a zillion times. No math involved and that's a good thing. I did not spent much time on it yet I could get above 70% on the Qbank. It consist of 15% in weightage and that's just second to FSA which is 20%. Indeed Ethics cannot be neglected as it is almost like a give away kind of topic.

By the way, couple of days ago I got up from sleep with a shock and it occured to me that I am in my final phase of the exam prepation.

Level 1 Ticket Received

Today the ticket for Level 1 exam is made available. That means that the cry for battle has started. The battle will be at Singapore Expo. I hope my brain can retain all the materials and also I hope the Swine Flu don't escalate.

The actual amount of time require to study CFA Level 1

The CFA's website recommends studying at least 250 hours for each level of CFA. Alternatively 10-15 hours each week for 18 weeks. This assumes 1 Study Session per week.

From my own experience that is not enough. Despite having some background in fixed income, equity and derivatives, quant, basic econs and basic accounting, the recommended amount isn't enough.


I think a more realistic schedule is to study 10-15 hours each week over 36 weeks. This is more realistic. Since an undergraduate degree is required to take the CFA, it implies that many people who take this exam isn't very very young. Thus, the brain is not as super as before.

For me, I found my own physical stamina to be the limiting factor. Thus, having a good health and physically strong is also an important factor.

Economics comments

I have found that the Schweser notes for Economics aren't good. Perhaps because the CFA's text for this topic was written by Parkin and that his textbook has evolved more than a decade. CFAI's text on Economics is quite well written. I did found that there is quite a number of repetition as especially with regard to the aggregate demand and aggregate supply.

It is about 1 month away from the exam. I've written to the CFA customer service whether will the exam be postpone if the Swine-flu gets worst. They say they will inform me if that happens. Looks like I've to buy the N95 facemask for the exam!

Monopoly, monopolistic competition and oligopoly

Found that the above topics were poorly written in the Schweser Notes. I have to summary and make my own notes for it.

Feel tired again

For the past two days I felt I cannot breathe properly. Feel so tired and lethargic. Yesterday I went for a swim over 16 laps but I still feel so tired. My concentration power has reduced significantly. This is terrible. Don’t know why. This CFA exam is such a torture. It is like claiming up a bottom – as you go higher the less oxygen. I sometime feel that as the oxygen gets less, it is possible to just “die” without even knowing it. Not so such whether such big sacrifices is worth it or not. Just notice that my son seems to have suddenly grown taller over the few months. It shows how much energy I have spent on the text. I know many clients don’t care about all these exams. Even I have achieve it, it doesn’t mean anything great for clients. So I really wonder what I am doing is sensible or not.

SelfTest FSA+Corporate Finance

I generated 120 questions from Q Bank on Financial Statement Analysis/Corporate Finance. My score was 84%. Not bad for a start. I hope to increase the score higher. I'll next move to Economics to review the topic in more in depth.

Careless mistake

I hate myself for making so many careless mistakes. Had being doing the MCQs and realised that most mistakes I made were careless mistakes. I knew the answer but somehow enter the wrong answer... urggg!!

Zombie like / Rojak

My wife complained to me that I am becoming like a zombie husband. I don't talk anymore and whenever she talks to me, I did not response. This exam is really getting on everybody's nerve! I had being studying very hard especially before my energy level goes down again due to sitting down too much. The sacrifice that I am making for sitting for this exam is very great. Firstly, I can't play with my two kids and they being growing up needed attention. Maybe when they grow up, they'll abandon me to the old folks home for neglecting them during these three years of being a zombie thanks to this exam. Secondly, I really wonder what is the exact opportunity cost of putting so much attention to this exam. I don't mind opportunity cost in terms of $$ for which I am prepared to sacrifice. But rather, what happens if life is taken away? My life, kids' life? Wife's life? Over the past weekends, were informed that my client's wife got cancer. Then yesterday, was informed one of my relative had cancer too and seem to be an advanced stage. Both are young people. Also in the hot news now is a massive food poisoning case in which hundreds of people felt ill after eating rojak at Gelang Serai. Two persons have died while another woman had a miscarriaged. I heard of people dying of illness and accidents but die due to eating rojak? I also heard of people having miscarriage due to accidents but due to eating rojak? Life is so precious. What is the exact opportunity cost of taking so much time for this exam? I don't know.

Let's don't think so much. I hope to complete one reading today.

Breaking another record

Today, I swam 24 lengths! OK, it is actually 10 laps, rested for a few minutes and followed by 14 lengths. This was within 45 mins. OK, I know it isn't fanatistic but for a person like me it is a remarkable achievement!

But now my body is aching all over the place. I hope I can complete one reading revision by tonight.

Free Cash Flow to Firm (FCFF) / Free Cash Flow to Equity (FCFE)

The FCFF is the cash flow available to debt suppliers and shareholders after all operating expenses have been paid and after necessary investment in working capital & fixed capital have been made.

FCFF = Net Income + Non-cash charges + InterestExpense (1 – tax rate) – Fixed investment – Working Capital Investment

OR

FCFF = Cash flow from operation + X – Fixed Investment

Where X = Interest Expense*(1-tax rate) for US.GAAP (because US GAAP always include Interest Expense as its operation)

X = Interest Expense*(1-tax rate) for IFRS if it classify Interest Expense as operating activity.

Also, X = Dividends paid for IFRS if it classify dividends payment as operating activity.

Recall: In IFRS, Dividends paid can be classified as operation or financing. Also in IFRS, interest expense can be classified as operation or financing too.

Free Cash Flow to Equity

FCFE = CFO + X – Net Borrowing – Net Debt Repayment – Fixed Investment

X = Dividends paid in IFRS if it is classified as operation

Calculating cash received for equipment sold

LOS 34:f - demonstrate the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;

One of the difficulty in understanding this LOS is calculating the cash received for equipment sold based on the Income & Balance Sheet statements. It does not help that the SchweserNotes just bypass this particular calculation. I must say that the Notes were poorly written for this particular LOS 34:f. The examples given were only for calculating the cash paid for purchase of equipment. The example given on page 114 did not have a sale of equipment. Shame!

If the company has not sold of equipment, calculating the cash flow for purchase of equipment is easy. In this case, cash paid for purchase of equipment = Ending Historical Cost of Equipment – Beginning Historical Cost of Equipment.

But if there is a sale of equipment, it becomes complicated. The CFA Institutes reading were no better in its description. It just give the 3 steps to calculate the cash received for sale of equipment on page 264 at Reading 34 without much explanation on the rationale. There are so many steps that there isn’t enough time to calculate during examination. Shame shame!

After cracking my brain, here is the right flow of thought:

Beginning Historical Cost of Equipment (from Balance Sheet)
- Beginning Accumulative Depreciation (from Balance Sheet)
- Depreciation Expense for the period (from Income Statement)
+ Purchase of Equipment (from footnotes)
- Historical Cost of Equipment Sold
= Ending Historical Cost of Equipment (from Balance Sheet)
– Ending Accumulative Depreciation (from Balance Sheet)

Rearrange the equation and you’ll get the Historical Cost of Equipment Sold.

Therefore, cash received for sale of equipment = Historical Cost of Equipment Sold + Gain (from Income Statement).

Energy Level Up

Yesterday I swam 22 laps! OK, I cheated a little bit - it was 8 laps, rested a couple of mins, 12 laps, rested 5 mins and 2 laps. Nevertheless it was a remarkable recording breaking for me! My energy level blew the roof top. But today, I felt very tiried and body was aching. But this tired feeling is not lethargic which no amount of rest can help. So looks like my energy level is up for a few days.. hopefully enough for me to revise some chapters.

I think even if I fail my CFA exam, I probably would have increased my level of fitness by then!

Horror

I discovered that I did not study the Study Session 10 of FSA consisting of 5 readings!

Today had tried to revise FSA right from the start. The old problem of feeling tired and lethargic sets in. Very irritating. Have to go for a swim tomorrow. Had swam 16 laps last week. Tomorrow I shall try 20. Also may need to increase my exercise frequency to maybe twice a week.

Update - completed derviative

I completed Derivative today. Now, it is time to proceed to Alternative investment. Should't be too difficult since there are only two readings.

Increasing physical stamina cannot be overemphased. Yesterday morning, I swam 16 lengths breaststoke while my son was having his usual swimming class. Swimming 16 lenghts is breaking my own personal record! I also feel much more in energy and perhaps that's why my absorption rate is higher for this CFA study.

Completed Equity/Fixed Income

I have completed studying Equity & Fixed Income. Today I completed the last chapter of Fixed Income.

Now, I shall proceed to Derviatives and Alternative Investments. I think I am on schedule.

There is one thing I realised when studying for this exam is that mental and physical health are extremely important. On Friday and Saturday, my family & I went to Rasa Sentosa Resort to relax. It is also the school holiday. After the two days get away, my mental and physical productively increases tremenously.

Since physical stamina is so important for this coming CFA Level 1, I'll probably go for a swim more frequently. I am thinking of swimming every day in order to ensure I am fit enough for that six hours mental stressed exam!

Update

I've completed Corporate Finance, Portfolio Management and Equity Investments. I am now left with Fixed Income, Derivatives and Alternative Investments.

I had also decided to purchase the Schweser Notes together with the QBank and the two volumes of exam questions. I bought the notes after I am convinced that I needed a summary of the CFA's text. The CFA's text are poorly written unfortunately.

I also have stopped working since begining of March in order to concentrate on the CFA exams. Had stop making effort to find new clients but am still currently servicing existing clients and pending cases. Anyway since the current economy is going on a tailspin with Singapore projected to have -10% GDP growth, my opportunity cost of not working is less. Revenue for the first few months of this year had been good and so that will help with my family's expenditure for the next few months.

Income Taxes (Reading 37)

So far, this is the worst chapter I've seen. The text is poorly written. Seems to me that the authors just lift the text from the technical specification wholesale.



Deferred tax Assets - Is like the company overpaying income tax which it expects a future refund (or a reduction in tax) provided there is future profit to remain taxable.



Deferred tax liability - Is like the company underpaying the income tax which it expects to pay back in later period provided there is future profit to remain taxable.



In the Income Statement: Income tax expense (based on accounting profit) = net increase in deferred tax liablity + tax payable (which is the amount that is going to be paid in cash to the authority)



Tax Base of an Asset = The amount that will be deductible for tax purposes in future periods as the economic benefits become realized. "Deductible" means able to reduce tax payable.



==>I still cannot mechanically understand how to determine the Tax Base of an Asset :(



Tax Base of a Liability = Carrying amount - any amount that will be tax deductible in future.

If the liability is a prepaid revenue, tax base of liability = carrying amount - the revenue that will not be taxable in future.

Completed Inventories (Reading 35)

This was another horrible chapter. The concepts are not difficult to grasp but the chapter was poorly written. Instead of giving a systematic explanation and formulae, it gave many examples instead. With so many figures in the example, it tends to cloud the underlying concepts. I have to make my own summary by extracting from the examples given. This was not a good chapter to read.

By end of this week, I've to complete 3 chapters. It looks to me that it is impossible. I spent one full day on Inventories itself.

Converting a financial statement from LIFO to FIFO

Adjustment for Inventory value in balance sheet:
Inventory (FIFO) = Inventory(LIFO) + LIFO Reserve
Total Assets (FIFO) = Total Asset (LIFO) + LIFO Reserve

Adjustment for Cost of Goods Sold in Income Statement:
Y2006 Cost of Goods Sold (FIFO) = Y2006 Cost of Goods Sold (LIFO) - (Y2006 LIFO Reserve - Y2005 LIFO Reserve)

Call this deltaReserve = (Y2006 LIFO Reserve - Y2005 LIFO Reserve)

Adjustment to Net Income:
Net Income (FIFO) = Net Income (LIFO) + deltaReserve * (1 - tax rate)

Estimated Cumulative tax savings under LIFO vs FIFO:
Cumulative Gross Profit Saved
= Cumulative Gross Profit (FIFO) - Cumulative Gross Profit (LIFO)
= LIFO Reserve

Cumulative tax saved under LIFO = LIFO Reserve * tax rate (assuming constant tax rate in previous years)

Adjustment to Tax Deferred Liability:
Increased in (Debt) tax deferred liability (FIFO) = LIFO Reserve * tax rate

Adjustment to retained earnings:
Increase in retained earnings (FIFO) = LIFO Reserve * ( 1 - tax rate)

LIFO and FIFO ratios:
Inventory turnover ratio (FIFO) = Cost of Goods Sold (FIFO) / Inventory (FIFO)

Number of days of inventory (FIFO) = 365 / Inventory turnover ratio (LIFO)

Gross Profit Margin (FIFO) = Gross Profit / Revenue = (Revenue - Gost of Goods Sold (FIFO) ) / Revenue

Current Ratio (FIFO) = Current Assets / Current Liability = Total Assets (FIFO) / (Total Liability (LIFO) + Increased in (Debt) tax deferred liability (FIFO))

Return On Assets (FIFO) = Net Income / Total Asset = Net Income (FIFO)/Total Assets (FIFO)

Debt To Equity (FIFO)
= Total Liability / Shareholders' Equity
= (Total Liability (LIFO) + Increased in (Debt) tax deferred liability (FIFO)) / (Equity (LIFO) + Increase in retained earnings (FIFO))

Understanding Cash Flow Statements

The Reading 34 turns out to be one of the greatest torture I have to go through. I took more than one and a half week on it. Partly because I had to work and hence could not have a continous study time of straight six hours but partly because the topic turns out to be deadly difficult. What is so difficult about cash flow right? Goodness, you cannnot imagine how accountants have invented horrible things probably just to make sure they keep their jobs! The Net Income to Operational Cash Flow reconciliation turns out to be non-trival. Familiarisation of accurals are extremely important. Determining how much cash the firm receives from sale of an equipment just examining the Income and Balance Sheet was not easy. But there are some standard formulaes that must be committed to the brain. Since my mind is fresh I'll type it here because I am sure these will become alien to me once again a few months down the road when I make my revisions:

Reconcile Net income to Operation Cash Flow:
Start:
+Net Income
- Depreciation Expense (because depreciation is recognised as an expense but there is no outflow of cash)
- Change in Accounts Receivable (because a positive change receivable means revenue but cash has yet to be collected from the customer)
+Change in Accounts Payable (because a positive change payable means expense was recognised but firm has yet to pay cash to suppliers)
- Change in Inventory (a positive change in inventory means cash is been paid to suppliers yet no expense is recognised)
= Cash Flow Due to Operations

Calculating Cash Received from sale of equipment:
First Step: Calculate Historical Cost of equipment sold -

Begin Equipment Historical Cost
+Equipment Purchase during the year
- Ending Equipment Historical Cost
= Historical Cost of equipment sold

Second Step: Calculate depreciation value of equipment sold -

Begin Accumulated depreciation
+Depreciation expense for the year
-ending Accumulated depreciation
= depreciation value of equipment sold

Third Step: Calculate cash received from equipment sold-
Book Cost of equipement sold = Historical Cost of equipment sold -depreciation value of equipment sold
Plus Gain (loss)
= cash received from equipment sold

Calculating cash paid to suppliers, customers, employees, and "other operating expenses", income taxes must be commtited to the brain cells.

Starts FSA-8 tonight

Tonight i'll start on the Study Session 8 of Financial Reporting and Analysis.

So far I am OK with FSA although I am running a little bit behind time. It looks to me that all the hype from the prep providers which have been saying how difficult FSA is isn't that true. In fact, reading the text really give a firm foundation in FSA.

Moved on to FSA

I have already started reading the financial reporting and analysis. Preliminarily, the text are quite easy. The explanations in the text are good enough. Previously I attended a free sample lecture on FSA from Stalla. After reading the text, it seems that the lectures were not relevant at all. It was taught too fast and the lecture spent too much time on debit and credit. In the text, debit and credit are considered optional reading! In fact, the text managed to explain the concepts of double entry accounting without even teaching the T-accounts. After reading Reading 30, I could do basic double entry accounting without figuring out the debits and the credits. I could also answer most of the questions at the end of the Reading. I think I made the right decision that it is not necessary to spent many on those prep-course. Phew!

Completed Quant today

At last I completed the Quant today. I am obviously behind time. These topics are not entirely new to me yet I spent too much time on them. I was slowed down by my lost of hard disk data. I spent a few weeks trying to get back to normality. I am going to move to FSA. I heard that this is the worst part of all the topics in the CFA Program. I hope I don't die of studying these.

I have yet to sign up for any Prep course. I have not sign up for these due to budget reason and partly because I find it hard to believe that these courses are necessary. I have been self-studying all the course i did for ChFC and the regulatory exams and so it is very hard for me to think that the lectures are necessary. Nevertheless, I do need to get my hands on those practice exam questions and mock exams and so paying for those are probably unavoidable.