CFA Level I terms: V

The validation dataset checks those relationships and is used to tune the model.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

Under proof of stake, selected participants called validators pledge (stake) capital to vouch for a block. A validator proposes a block, a majority of the other validators who have also staked assets must attest that it is valid, and validators are rewarded for both proposing and attesting.

Distributed ledgers and blockchain: how digital assets are recorded Alternative Investments

US GAAP keeps the gross DTA and subtracts a valuation allowance, a contra asset. Either way the write-down is a charge in tax expense, and a later release is a boost to profit.

Deferred tax assets and liabilities Financial Statement Analysis

Check valuation allowance changes. A falling allowance means profit was boosted by a lower tax charge, so ask whether the outlook really improved.

Income tax disclosures and the tax rate reconciliation Financial Statement Analysis

The outputs of the model are the valuation model inputs: free cash flow to the firm and to equity, earnings per share (EPS), earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings before interest and taxes (EBIT).

Forecasting working capital, capex, cash flow and the balance sheet Financial Statement Analysis

It turns a valuation narrative about the company (industry outlook, competition, the company's plans) into numbers.

Why build a disaggregated model, and at what level of detail Equities

In scenario analysis each scenario is a coherent set of assumptions for revenue growth, margins, investment and financing, carried through the statements to its own firm value and equity value. Each one tells its own story, a valuation narrative per scenario.

Scenario analysis with probability weights Equities

Value added resellers not only distribute a product but also handle more complex installation, customization, service or support.

Types of business models Corporate Finance

Over long periods value stocks have often outperformed growth stocks. This is the value anomaly.

How biases show up in markets: momentum, bubbles and value Portfolio Construction

The value at expiration is the settlement amount. At T the spot price and the forward price are both prices for immediate exchange, so nothing is left to discount.

Forward price vs forward value: at initiation, during the life, at expiry Derivatives

The value at initiation is zero for both sides. The forward price is chosen so that neither party gains or loses at the start, which is why no cash changes hands.

Forward price vs forward value: at initiation, during the life, at expiry Derivatives

Value at risk (VaR) is the lower bound of a one-sided confidence interval for the change in value: a loss that will be exceeded only with a small probability over a stated horizon.

Value at risk from the normal distribution Quantitative Methods

Value at risk (VaR) measures the size of the tail of the distribution of profits and losses. A VaR statement has three elements: an amount in currency, a time period and a probability.

Measuring risk: probability, VaR, CVaR and sensitivities Portfolio Construction

The firm's systems and processes that create value for its customers are its value chain. It includes only activities that one firm performs, including ones customers value that never touch the product.

Business model features Corporate Finance

The value during the life is the gain or loss at time t if the contract were closed now. The long effectively owns the asset, worth S_t, and owes the forward price at T.

Forward price vs forward value: at initiation, during the life, at expiry Derivatives

The value factor, high minus low (HML), is long stocks with high book-to-market ratios and short stocks with low book-to-market ratios.

Arbitrage pricing theory and multi-factor models Equities

The value from a peer multiple is the multiple times the company's own fundamental. Applied to EPS it gives a value per share.

Valuing with multiples: comparables and forecasted fundamentals Equities

Value in use is the present value of the cash flows the company expects the asset to produce.

Impairment and derecognition of PP&E and intangibles Financial Statement Analysis

Six factors set an option's value: the value of the underlying, the exercise price, the time to expiration, the risk-free interest rate, the volatility of the underlying, and any income from the underlying or carrying costs of owning it.

Six factors that move an option's value Derivatives

The value proposition brings the first four answers together: who, what, where and how much. It is the set of attributes customers value that makes them buy from one firm rather than another, given the price.

Business model features Corporate Finance

After the payment, the value reset to zero is complete: the contract is worth nothing at the new price, and tomorrow's value will be only tomorrow's move.

Futures price at inception and how daily settlement changes value Derivatives

Shares: the market risk premium (the equity market over the risk-free asset), the size risk premium (small companies minus large ones) and the value risk premium (companies with a high book-to-market ratio minus those with a low one).

Required return: risk-free rate, inflation and risk premia Quantitative Methods

The value factor, high minus low (HML), is long stocks with high book-to-market ratios and short stocks with low book-to-market ratios.

Arbitrage pricing theory and multi-factor models Equities

The value to book multiple uses debt and equity at market and at book. The enterprise value to book multiple also deducts cash from both.

Enterprise value multiples Equities

A multiple divides a value to claimants (the numerator) by a fundamental that belongs to the same claimants (the denominator).

Valuing with multiples: comparables and forecasted fundamentals Equities

In market-capitalization weighting (also called value weighting) each constituent's weight is its market value divided by the total market value of all constituents.

Market-cap, float-adjusted and fundamental weighting Quantitative Methods

Value-add real estate strategies include leasing vacant space, redevelopment and repositioning. The return is increasingly equity-like, with appreciation a meaningful share.

Real estate returns: core to opportunistic, leverage and diversification Alternative Investments

Price set by the value the customer receives, often estimated from the customer's opportunity cost.

Pricing and revenue models Corporate Finance

It is the most common return on debt, because most bonds pay a fixed coupon. A variable capital distribution return changes over time.

Types of returns: assets, instruments and indicators Quantitative Methods

Determine the transaction price, including variable consideration such as bonuses or rebates only to the extent a significant reversal is unlikely.

Revenue recognition: the five-step model Financial Statement Analysis

Variable costs move with output: inventory for a retailer, raw materials and hourly wages for a manufacturer. Fixed costs, stated as a total, do not change within a normal output range in the short run: salaries, D&A, software, insurance and some utilities.

Operating profitability and working capital Equities

Variable current assets are the extra inventory and labor needed in a seasonal peak or a growth phase.

Working capital management approaches Corporate Finance

The table also gives the variance of the dependent variable: SST ÷ (n − 1), the spread around the mean. $s_e$ is the spread around the regression line.

The ANOVA table and the standard error of the estimate Quantitative Methods

Here σ₁ is the standard deviation over one short period (say a day) and T is the number of short periods in the long one. This variance scaling is what makes the standard deviation grow only with √T.

Scaling volatility over time: data frequency and the root-of-time law Quantitative Methods

The variance–covariance matrix puts the variances on the diagonal and the covariances off it, and each cell is weighted by the product of its two weights.

Portfolio expected return, variance and the role of correlation Quantitative Methods

The variation margin is the deposit that restores the balance after it has fallen below maintenance.

Futures contracts, daily settlement and margin calls Derivatives

A variational autoencoder (VAE) is an encoder–decoder network that compresses data and reconstructs it. It is used to reduce dimensionality and to detect anomalies.

AI and machine learning: supervised, unsupervised, reinforcement, deep Quantitative Methods

Variety is the mix of sources and formats: structured, semi-structured or unstructured. Veracity is the credibility and reliability of a source.

Big data, the four Vs and alternative data Quantitative Methods

Varying risk aversion is aversion that changes as wealth changes.

Risk preferences, mean–variance utility and indifference curves Quantitative Methods

Derivative price change for a change in the underlying's volatility.

Measuring risk: probability, VaR, CVaR and sensitivities Portfolio Construction

Velocity is the speed and frequency of recording and transmission, with real-time or near-real-time data now common.

Big data, the four Vs and alternative data Quantitative Methods

Venture capital is private equity for the early life-cycle stage, when a firm may have only an idea or business plan and a small customer base.

What makes an investment alternative: features and categories Alternative Investments

Venture capital (VC) is the small, sometimes controlling, equity stake such investors take to fund the next stage.

Model construction by company life cycle: from venture to decline Equities

A private equity fund buys, improves and sells portfolio companies; a venture capital fund does this for young companies.

Mutual funds, ETFs and other pooled investment products Portfolio Construction

Venture debt is private debt that backs start-up and early-stage companies with little or negative cash flow, often as a line of credit or a term loan.

Private debt: direct lending, mezzanine, venture and distressed debt Alternative Investments

Variety is the mix of sources and formats: structured, semi-structured or unstructured. Veracity is the credibility and reliability of a source.

Big data, the four Vs and alternative data Quantitative Methods

Vertical common-size analysis divides each item by total assets. The percentages for assets add to 100%, and so do those for liabilities and equity together.

Common-size balance sheets, liquidity and solvency ratios Financial Statement Analysis

Vertical integration is expanding into an earlier or later stage of the chain that delivers a product to end users.

Porter's Five Forces and economic moats Equities

The service period, usually from grant to vesting, is when the employee earns it. On the vesting date the employee can first exercise.

Share-based compensation: stock grants, options and SARs Financial Statement Analysis

The fix is vintage diversification: commit to funds across several vintage years. It is a policy for investors, not for funds or for companies that use the capital.

Private capital in a portfolio: risk, return, vintage years and diversification Alternative Investments

To compare funds fairly, compare those with the same vintage year, which is the year of first investment. Then both are in the same phase.

Why alternative investment performance is hard to judge Alternative Investments

Volatility is the everyday word for the standard deviation of returns. Data frequency is how often you observe the series: daily, weekly, monthly, yearly.

Scaling volatility over time: data frequency and the root-of-time law Quantitative Methods

The spread is a direct input to the price, unlike the chance of an up move. This is volatility in a binomial model.

Risk neutrality: why real-world probabilities do not matter Derivatives

Six factors set an option's value: the value of the underlying, the exercise price, the time to expiration, the risk-free interest rate, the volatility of the underlying, and any income from the underlying or carrying costs of owning it.

Six factors that move an option's value Derivatives

Volume is the number of data points, now millions or billions. Volumes have grown from megabytes and gigabytes to terabytes (trillions of bytes) and petabytes (quadrillions).

Big data, the four Vs and alternative data Quantitative Methods

The drivers are volume growth (more or fewer units), price/mix (price changes plus a shift toward pricier or cheaper products) and the foreign currency effect (translating foreign sales into the reporting currency).

Building a sales-based pro forma income statement Financial Statement Analysis

Think of the two drivers separately: volume vs price growth. In a period of price inflation (a general rise in prices) companies usually raise selling prices, but customers buy less when they do.

Forecasting sales and costs with inflation or deflation Financial Statement Analysis

The volume-weighted average price (VWAP) averages the prices of trades over a period, weighting each by the number of shares traded.

Where shares trade: exchanges, off-exchange and over the counter Equities

A voluntary export restraint (VER) is like a quota, except that the exporting country imposes it on itself. An export subsidy is a payment per unit exported.

Tariffs, quotas, export subsidies and their welfare effects Economics

A country holds its exports below what demand would take.

Tools of geopolitics: national security, economic and financial Economics

Members who volunteer in developing, administering or grading exams are volunteers with CFA Institute programs.

Standard VII(A): Conduct as Participants in CFA Institute Programs Ethical and Professional Standards

Shareholders who cannot attend can vote in advance or delegate their vote to a third party, which is a vote by proxy.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

The voting control vs economic ownership gap is the arithmetic of a dual class structure: a holder's economic stake is a share of all shares, while the vote share is a share of all votes.

Share classes and voting rights: dual class structures and differential voting shares Equities

Deciding and voting. Holders analyze the materials, institutions often with a proxy advisor's research, and send instructions through the voting service and the custodian before the voting deadline.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

Stewardship is using ownership rights, including votes, to protect and enhance the value of the capital invested. A voting policy shows a stewardship approach in concrete terms.

How shareholders vote: proposals, proxies, proxy advisors and asset managers Equities

Shareholders influence the company mainly through their voting rights: electing directors and voting on matters in the company charter.

Key features of corporate issuers Corporate Finance

A vulnerable investor is a client who may be affected by diminished capacity or at risk of financial exploitation.

Standard III(E): Preservation of Confidentiality Ethical and Professional Standards