Training of Financial Analysts

1. Training of Financial Analysts

2. Job An analyst will write reports on the companies they are supposed to cover, trying to describe the businesses and their opinion of the company's investment potential, usually from a fundamental analysis standpoint. They also summarize that report with a rating, such as "buy", "sell", "market perform", "overweight", "hold", etc.

3. Financial analysts, also called securities analysts and investment analysts, work for banks, insurance companies, mutual and pension funds, securities firms, and other businesses, helping these companies or their clients make investment decisions. Financial analysts employed in Commercial lending perform "balance sheet analysis," examining the audited financial statements and corollary data in order to assess lending risks. Usually, financial analysts study an entire industry, assessing current trends in business practices, products, and industry competition. They must keep abreast of new regulations or policies that may affect the industry, as well as monitor the economy to determine its effect on earnings.

4. Financial analysts use spreadsheet and statistical software packages to analyze financial data, spot trends, and develop forecasts. On the basis of their results, they write reports and make presentations, usually making recommendations to buy or sell a particular investment or security. Senior analysts may actually make the decision to buy or sell for the company or client if they are the ones responsible for managing the assets. Other analysts use the data to measure the financial risks associated with making a particular investment decision.

5. Financial analysts in investment banking departments of securities or banking firms often work in teams, analyzing the future prospects of companies that want to sell shares to the public for the first time. They also ensure that the forms and written materials necessary for compliance with Securities and Exchange Commission regulations are accurate and complete. They may make presentations to prospective investors about the merits of investing in the new company. Financial analysts also work in mergers and acquisitions departments, preparing analyses on the costs and benefits of a proposed merger or takeover. There are buy-side analysts and sell-side analysts. Some financial analysts, called ratings analysts (who are often employees of ratings agencies), evaluate the ability of companies or governments that issue bonds to repay their debt. On the basis of their evaluation, a management team assigns a rating to a company's or government's bonds. Other financial analysts perform budget, cost, and credit analysis as part of their responsibilities.

6. Financial analysis Financial analysis refers to an assessment of the viability (життєздатність), stabilityand profitability (прибутковість) of a business, sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their basis in making business decisions. Based on these reports, management may: • Continue or discontinue its main operation or part of its business; • Make or purchase certain materials in the manufacture of its product; • Acquire or rent/lease certain machineries and equipments in the production of its goods; • Issue stocks or negotiate for a bank loan to increase its working capital. • other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

7. Goals • Financial analysts often assess the firm's: 1. Profitability- its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency(кредитоздатність )- its ability to pay its obligation to debtors and other third parties in the long-term;

8. 3. Liquidity- its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators.

9. Education • It is often required for analysts to earn an MBA or a professional qualification such as Chartered Financial Analyst designation (CFA) in the United States of America, or Certified International Investment Analyst designation (CIIA) in Europe and Asia, to advance beyond a certain level within a firm. Alternatively, analysts may earn a Master of Science in Finance (MSF).

10. Faculty of Actuaries and Institute of Actuaries(UK) http://www.actuaries.org.uk

11. What Do Actuaries Do? An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries make financial sense of the future. This expertise gives the Actuarial Profession an unrivalled appreciation of financial risk management one of the most fundamental, but poorly understood, areas of business. Being skilled mathematicians, actuaries are able to analyze past events, assess the present risks involved, and model what could happen in the future. They may then forecast the long term financial implications of business decisions, both in terms of likely outcomes and in the variability of these outcomes.

12. Where are actuarial skills most in demand? Traditionally, long term financial institutions have employed actuaries in large numbers. Insurance companies and pension funds have revenue flows and payment obligations stretching many decades into the future. Now, actuarial skills are being applied to many other areas of business as well, so members of the profession may be found in wider areas such as corporate finance, asset management and major capital projects.

13. Introduction to the Education System There are four stages: • Core Technical stage • Core Applications stage • Specialist Technical stage • Specialist Applications stage This is shown diagrammatically as:

14. Core Technical Stage In the Core Technical stage there are nine subjects: • CT1 Financial Mathematics • CT2 Finance and Financial Reporting • CT3 Probability and Mathematical Statistics • CT4 Models • CT5 Contingencies • CT6 Statistical Methods • CT7 Economics • CT8 Financial Economics • CT9 Business Awareness Module

15. Each of CT1 - CT8 will be examined by one paper of three hours duration. CT9 Business Awareness Module involves a 2-day residential course, with pre-course study and a post-course test, that has been designed to help people joining the Actuarial Profession understand: • the business environment they will be working in, including the related challenges • how to tackle business related problems • their professional responsibilities • the need to equip themselves for lifelong learning The module consists of internet-based study, attendance at a two day course and internet-based assessment.

16. Core Applications Stage In the Core Applications stage we will be covering actuarial concepts. The main Core Applications subject will be assessed by two papers each of three hours in length, one paper covering assets and one covering liabilities and asset-liability management. The two papers will be added together to give a single mark for: • CA1 Core Applications Concepts CA11 one paper - assets CA12 one paper - liabilities and asset-liability management

17. CA2 Modelling requires attendance at a two day course with a practical data handling assessment on the second day. The purpose of the first day is to ensure that all students understand the nature of the assessment and are familiar with the software provided and on the second day the assessment takes place. The successful candidate will be able to demonstrate: • Analysis and summary of data • Development of a model with audit trail • Ability to apply results • Interpretation of results within a general business context • Communication of results to a technical audience

18. CA3 Communications has two questions, each testing a different type of written communication. The paper is of three hours duration.

19. Specialist Technical stage Students will in future be required to pass two subjects at the Specialist Technical stage. There are seven Specialist Technical subjects: • ST0 Alternative Specialist Technical • ST1 Health and Care Specialist Technical • ST2 Life Insurance Specialist Technical • ST3 General Insurance Specialist Technical • ST4 Pensions and other Benefits Specialist Technical • ST5 Finance and Investment Specialist Technical A • ST6 Finance and Investment Specialist Technical B Each of ST1 - ST6 will be tested by one examination paper of three hours in length.

20. Specialist Applications stage There are seven Specialist Applications subjects. Students required to pass one subject chosen from: • SA0 Research Dissertation Specialist Applications • SA1 Health and Care Specialist Applications • SA2 Life Insurance Specialist Applications • SA3 General Insurance Specialist Applications • SA4 Pensions and other Benefits Specialist Applications • SA5 Finance Specialist Applications • SA6 Investment Specialist Applications Each of SA1–SA6 are tested by an examination paper of three hours duration.

21. UK Practice Modules A UK Practice Module has to be taken by students working in the UK. This is tested by multiple choice examinations each of one and a half hours duration. The first part is common to all practice areas and tests the generic principles of UK Financial Services. The second part tests UK business practice, regulation, legislation (законодавча діяльність) and professional guidance notes in specific areas.

22. Qualifications 1. Class of Associate Students who have completed all but the Specialist Technical and Specialist Applications subjects and who have completed the appropriate professionalism course and meet the work-based skills requirement, may apply to transfer to the class of Associate member. Students do not automatically transfer to Associate prior to taking the Specialist Technical and Specialist Applications subjects, but can apply to transfer to the class of Associate if they no longer wish to continue taking examinations.

23. 2. Class of Fellow Students will be admitted to the Fellowship on having successfully completed or passed the Core Technical subjects, Core Applications subjects, two of the Specialist Technical subjects, one of the Specialist Applications subjects and having met the work-based skills requirement. An applicant for admission to the Institute Class of Fellow must have attained the age of 23 years.

24. 3. Diploma in Actuarial Techniques The joint Diploma in Actuarial Techniques was introduced in April 1996. The Diploma in Actuarial Techniques will be sent directly to students completing all of the Core Technical stage subjects: CT1, CT2, CT3, CT4, CT5, CT6, CT7, CT8 and CT9.

25. 4. Certificate in Finance and Investment The Certificate in Finance and Investment is a joint certificate and will be sent to all students of the Faculty and Institute of Actuaries who complete or are exempted from CT1, CT2, CT4, CT7, CT8, CT9 and CA1 .

26. Chartered Financial Analyst Institute (USA) http://www.cfainstitute.org/

27. Chartered Financial Analyst (CFA) is a professional designation offered by the CFA Institute to financial analysts who complete a series of three examinations and work for at least four years in the investment decision making process. CFA charterholders are also obliged to adhere to a strict Code of Ethics and Standards (a commitment that, above all else, put the interests of clients first) governing their professional conduct. The CFA designation is a qualification for people engaged in the financial and investment sector.

28. From 1963 (when the CFA designation was first used) to 2006, approximately 69,600 people from 126 different countries have been awarded the right to use the CFA designation. As of 2006, more than 116,000 more people are currently enrolled to take one of the examinations. The CFA program began in the United States, but has become increasingly international with many people becoming charterholders across Europe, Asia and Australasia. By 2003 fewer than half the candidates in the CFA program were based in the US and Canada, with most of the other candidates based in Asia or Europe. India and China have shown some of the highest growth from 2005-2006 with increases of 25% and 53% respectively in the total number of charterholders.

29. The basic requirements for participation in the CFA program include holding or being in the final year of (a) four-year university degree (or international equivalent) or having four years of qualified, professional work experience in an investment decision-making process. The program focuses on portfolio management and financial analysis, and provides a generalist knowledge of other areas of finance.

30. The CFA exam Candidates generally take one exam per year over three years and are written at a postgraduate level for financial professionals. Exams are challenging, with only 39% passing the Level I exam in December 2006. The June 2006 Level I Exam resulted in a worldwide pass rate of 40%; Europe achieved the highest pass rate for that exam with 57%. The Level II and III passing rates for 2006 were 48% and 76% respectively.

31. The Level I study program emphasizes tools and inputs and includes an introduction to asset valuation and portfolio management techniques. • The Level II study program emphasizes asset valuation and includes applications of the tools and inputs (including economics, financial statement analysis (аналіз фінансової звітності), and quantitative methods) in asset valuation. • The Level III study program emphasizes portfolio management and includes strategies for applying the tools, inputs, and asset valuation models in managing equity, fixed income, and derivative investments for individuals and institutions.

32. All three exams are administered on paper, on a single day; the Level I exam is administered twice a year (usually the first weekend of June and December). The Level II and III exams are administered once a year, usually the first weekend of June. Each exam consists of two three-hour sessions. Both Level I and Level II are entirely multiple choice, while Level III consists of a session of short-answer questions and a session that is multiple choice. On the multiple-choice sections, there is no penalty for wrong answers.

33. Candidates who have taken the exam receive a score report that is intended to be fairly unspecific: there is no overall score for the test, only a Pass/Fail result. For each category of questions, each test-taker is given a broad range within which his or her performance falls: below 50%, between 50% and 70%, and above 70%. There is no pre-set passing grade for the exams. The threshold for passing is 70% of the average of the top 10% of all scores. The wide variation in pass rates from year to year may partially stem from this calculation.

34. The CFA curriculum The curriculum for the CFA program includes: • Ethics and Professional Standards • Quantitative Methods (such as the time value of money, and statistical inference) • Economics • Financial Statement Analysis • Corporate Finance • Analysis of Investments (stocks, bonds, derivatives, venture capital, real estate, etc.) • Portfolio Management and Analysis (asset allocation, portfolio risk, performance measurement, etc.)

35. The ethics section is primarily concerned with compliance and reporting rules when managing an investor's money or when issuing research reports, although there are some rules which pertain to more general professional behavior (such as prohibitions against plagiarism). There are also rules that specifically relate to the proper use of the designation for charterholders and candidates. All of these rules are delineated in the 'Code and Standards'.

36. The section on quantitative analysis is dominated by statistics and time series analysis. Other financial fundamentals such as the time value of money are also addressed. The statistics topics are fairly broad, but the main focuses are risk analysis, hypothesis testing and regression analysis. For the test, only two types of calculator are allowed (the Hewlett Packard 12C and the Texas Instruments BA II Plus). The test also features other quantitative topics, but these are covered in other sections. For example, calculating depreciation of assets is a part of financial statement analysis (accounting), and determining currency arbitrage is a part of international economics.

37. Both micro and macro economics are covered. There are sections for international economics, mainly related to currency conversions and how they are affected by international interest rates and inflation. The accounting section is heavily tested at Levels I and II, but is not a significant part of Level III. It is divided into financial statements analysis and corporate finance. Financial statement analysis considers the statement of cash flows, the balance sheet, and the income statement. Each of these documents gives a distinct view into the state and operations of a company. Corporate finance uses these views of the company to make decisions about projects, deciding how they will impact the company.

38. The section on security analysis is divided by the types of security. There is a general section on global markets, sections on equity (stocks), fixed income (bonds), and derivatives (futures, forwards, options and swaps). The first levels of the test require familiarity with these instruments, then the focus develops into correctly valuing them, and how to properly use them. The final section is portfolio management. This section increases in importance with each of the three levels. Portfolio management is an analysis of the process of managing money. It depends heavily on all of the other topics. When managing money for others, ethics is obviously important. This section deals with how the investors' needs are met by the portfolio manager. Modern portfolio theory is also tested: the efficient frontier, Capital asset pricing model, etc.

39. Fee Schedule To enter the CFA Program, you must pay: • An initial, one-time onlyregistration fee • An enrollment fee for your first exam (Level I) Fees for New Candidates Payment deadlines: December 2007: 15 Mar 07 15 Aug 07 17 Sep 07 Registration Fee(one-time) US$390 US$390 US$465         Exam Fee: Level I(enrollment) US$370 US$455 US$690         Total Cost to Enterthe CFA Program: US$760 US$845 US$1155   

40. Association of Certified International Investment Analysts http://web.aciia.org/

41. Certified International Investment Analyst (CIIA) is a designation offered by the Association of Certified International Investment Analysts (ACIIA) to professional financial analysts; candidates may be financial analysts, portfolio managers and / or investment advisors. To be awarded the CIIA, candidates must pass two "Common Knowledge" Examsand a third National/Regional Exam (examining knowledge of specific markets), and have 3 years relevant experience. The exams are taken twice per year and are written at a postgraduate level.

42. The exams are implemented by 27 national Associations of Financial Analysts, or Federations of Financial Analysts Associations. Federations of Analysts Associations that are members of ACIIA, are inter alia the Asia-pacific Securities Analysts Federation (ASAF) European Federation of Financial Analysts Societies (EFFAS) and Brazil / Latin America Associação Brasileira dos Analistas do Mercado de Capitais (ABAMEC).

43. The Common Knowledge Exams are divided into two levels - the Foundation and Final Level. Examined are essential skills and knowledge required for professionals working in investment markets common in all countries. • Foundation Level Exam Format: multiple choice, calculation, discursive and short essay questions Exam 1 3.10hrs Equity valuation and analysis Financial accounting and statement analysis Corporate Finance Exam 2 2.40hrs Fixed income valuation and analysis Economics Exam 3 3.10hrs Derivative valuation and analysis Portfolio management

44. Graduates who already have relevant qualifications may be exempt from the Foundation Level exams. Contact your local national/regional society for further details. • Final Level Exam Format: full and mini-case study questions and in-depth essay. Exam 1 3hrs Corporate finance Economics Financial accounting and statement analysis Equity valuation and analysis Exam 2 3hrs Fixed income valuation and analysis Derivative valuation and analysis Portfolio management

45. National/Regional ExamExam 1 3hrs Regulation Ethics Financial statements analysis Market structures and instruments

46. Multilingual Exams The Common Knowledge Exams can be conducted in Chinese, English, French, German, Italian, Japanese, Korean, Polish, Portuguese, Russian and Spanish. Other languages may be made available in the near future, please check with your local national/regional society.

47. Recommended study time: The recommended total hours of study necessary for the whole Common Knowledge Exams is a minimum of 500 hours. These hours include time spent working on exercises, case studies and private study.

48. American Academy of Financial Management http://www.financialanalyst.org

49. The AAFM was founded in 1996, via a merger between the American Academy of Financial Management & Analysts (AAFMA) and the Founders Advisory Committee of the Original Tax and Estate Planning Law Review. The AAFM is a professional association governed by a Board of Standards and a membership code of ethics and standards of practice. The AAFM operates in most countries as a ‘society’ or non-profit association, with the members of the local or regional chapter making up the ‘owners’ of the society. At all times the AAFM and its members are accountable to the community and to the board of standards.

50. The American Academy of Financial Management maintains more than 20 designations in the finance arena, with highly specialized role-based post-nominal awards. Members must either have come through one of the AAFM Accredited University Finance programs (such as Universities within AACSB - The Association to Advance Collegiate Schools of Business, ACBSP – The Association of Collegiate Business Schools and Programs, etc), through an Executive Training Program, or in some rare cases through grandfathering by way of board/peer review.