Community Q&A
Expert-verified answers to your financial certification questions. Ask, learn, and connect with fellow candidates.
CFA Level II Updated
How do I account for a rights issue that increases share capital?
Rights issues debit cash, credit share capital + APIC. Vermillion Resources 1-for-5 at $18 example, with TERP of $23.83 and EPS bonus-element adjustment.
How do I analyze a company with large NOL carryforwards and the associated valuation allowance?
NOL DTAs with valuation allowances signal past losses; releases create one-time earnings boosts but cash taxes remain low until NOLs are consumed.
When should I use the Breusch-Godfrey test instead of Durbin-Watson?
The Breusch-Godfrey test, also called the Lagrange multiplier test for serial correlation, addresses two major Durbin-Watson shortcomings.
How is fair value of a reporting unit estimated?
Fair value combines income approach (DCF), market approach (multiples), and rarely cost approach, reconciled to market cap.
How does Sloan's accruals decomposition identify low-quality earnings?
Sloan's ratio = (NI - CFO) / avg assets. Top decile firms (above 10%) underperform by 8-10% annually for three years.
What does charm measure and why does it matter for overnight delta hedges?
Charm is the derivative of delta with respect to time, quantifying how delta bleeds toward zero or toward one as expiry approaches.
How do I benchmark inventory against industry peers?
Benchmarking inventory requires three layers: level, trend, and quality. Pulling a single median number misses structural differences.
How do I read and analyze the effective tax rate reconciliation?
The ETR reconciliation bridges statutory to reported effective rate. For Valtoria Media's 21% to 16.8% bridge, key drivers are foreign differential (-3.2%), R&D credits (-2.4%), and state taxes (+1.8%)...
Why do long-dated swaps need a convexity adjustment?
Long-dated swap pricing requires subtracting a convexity term proportional to volatility squared times tenor.
How are contingent convertibles (CoCos) classified on a bank's balance sheet?
CoCos with discretionary coupons and no fixed maturity are 100 percent equity under IAS 32. Coupons reduce retained earnings, not net income.
What is the real exchange rate and what drives its equilibrium level?
Real exchange rate equals nominal times foreign prices over domestic prices. Equilibrium depends on productivity, terms of trade, and net foreign assets.
What drives movements in Accumulated OCI?
AOCI moves from FX translation, AFS/FVOCI securities, cash flow hedges, and pension remeasurements. Solstice Global decomposition shows a -$35M net change.
How do I use the Durbin-Watson statistic to test for autocorrelation?
The Durbin-Watson statistic tests for first-order autocorrelation in regression residuals. Its formula approximates DW = 2(1 - rho).
How do you identify a reporting unit for goodwill testing?
A reporting unit is an operating segment or one level below with discrete financials, management review, and distinct economics.
What are the most common ways management manipulates free cash flow?
FCF manipulation targets stretched payables, factoring, reclassified maintenance CapEx, lease shifts, and generous adjusted-FCF add-backs.
How is volga different from vega and when does it dominate P&L?
Volga is the second derivative of option price with respect to vol; it captures how vega accelerates as vol moves, dominating P&L during large vol shocks.
What is days of inventory on hand and when should I use it?
Days of inventory on hand equals 365 divided by inventory turnover. For Harvest Coastal Foods with turnover of 9.1x, DIO equals 365 / 9.1 = 40.1 days.
What's the difference between current tax expense and deferred tax expense components?
Total tax expense splits into current (taxes legally owed this year, cash-based) and deferred (change in net DTL balance). For Helvica Pharma, $312M current plus -$25M deferred signals DTL reversal...
How do I value an existing swap partway through its life?
Replicate the swap as fixed bond minus floating bond and discount each leg on today's curve.
What is a beneficial conversion feature and how is it accounted for?
A BCF arose when a convertible's strike was below the stock price at issuance. Under ASU 2020-06 the model is largely retired, but legacy filings still show it.
Want unlimited access?
You've browsed several pages. Sign in to save your spot, bookmark questions, and unlock all 1,373 CFA Level II community questions plus expert-verified study materials.
Have a Question? Ask Our Experts
Register to ask questions, get expert-verified answers, and connect with fellow certification candidates preparing for CFA, FRM, CIA, CPA, and EA exams.