Equity Valuation: The Perspective

While other modules of the CFA curriculum enables a professional with various tools and ways to reach a conclusion, Equity valuation part of the course helps them develop a perspective as an Analyst. As subjective and as differentiated we are as humans, so are our expectations, this module assists us in analyzing different expectations on the same podium.

The topic area is only worth about 10% of CFA Level 1 exam but is extremely important in the other two levels and through your career as an analyst. Much like the introductory material on Financial Statements, this material will act as base knowledge you absolutely must know. Most of the material is conceptual and will be a repeat for students of finance. If you are new to the industry, spend a little time to get the vocabulary and concepts.

Equity represents a residual ownership on the company’s assets. This implies higher risk but also potentially higher return, hence equity analysts have a reputed position in the industry. Not just when you interview for hard core equity research, but most finance job interviews make you witness questions from this module, cost of equity  and return on equity being the most frequent and favorite starters of interviewers.

A specific part of this course raises discussion on private company analysis, which is not only blur but uncertain due to lack of transparency, what makes it opaque is your analysis. This module helps you discover as an analyst, you not only look at the company from top and down angles but with experience discover loopholes which help you forecast in a much better way. When the time comes, for the real race of life, when we sit in the midst of 100’s of our fellow analysts, this base of our perspective built over the years helps us win the battle.

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