24 Functions are not Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods are are are are are are are are are are are are are are are are are are are are are are are are not not not not not not not not not not not not not not not not not not not not not not not not Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods are are are are are are are are are are are are are are are are are are are are are are are are not not not not not not not not not not not not not not not not not not not not not not not not Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods F are are are are are are are are are are are are are are are are are are are are are are are are not not not not not not not not not not not not not not not not not not not not not not not not Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods Methods are are are are are are are are are are are are are are are are are are are are are are are are not not not not not not not not not not not not not not not not not not not not not not not not Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions Functions
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Body of Knowledge • • • • • • • • • • Ethical and Professional Standards Quantitative Methods Economics Financial Statement Analysis Corporate Finance Analysis of Equity Investments Analysis of Debt Investments Analysis of Derivatives Analysis of Alternative Investments Portfolio Management CFA Institute Investment Tools Asset Valuation
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IUC’s scope will focus on two functions (Finance and IT) Adherence to process definitions within the Hackett taxonomy is key to comparability; processes are defined end to end Selling and General Administrative Scope Finance Finance Human Human Resources Resources Sales* Sales* Executive Executive and and Corporate Corporate Services Services**  Total  Sales  General Cash Cash Disbursements Disbursements Total Rewards Rewards Administration Administration Sales Execution Execution General Administration Administration Management Management    Revenue Cycle Payroll Services Sales Operations   Travel and  Revenue Cycle Payroll Services Sales Operations Travel and Transportation Transportation Services Services  Planning  Real Accounting Accounting and and External External Reporting Reporting  Data Data Mgmt., Mgmt., Reporting Reporting & & Compliance Compliance Planning and and Strategy Strategy Real Estate Estate & & Facilities Facilities Management Management  Staffing  Function  Government Tax Tax Management Management Staffing Services Services Function Management Management Government Affairs Affairs  Labor  Legal Treasury Treasury Management Management Labor Relations Relations Legal  Workforce  Quality Compliance Compliance Management Management Workforce Development Development Services Services Service* Quality Management Management Service*  Organisational  Planning Risk  Order  Planning & & Performance Performance Management Management Organisational Effectiveness Effectiveness Risk and and Security Security Management Management Order and and Contract Contract Management Management (OTC) (OTC)  Total  Corporate Fiscal Communications  Service Fiscal Analysis Analysis Total Rewards Rewards Planning Planning Execution Corporate Communications Service Execution  Strategic  Planning Function  Service Function Management Management Strategic Workforce Workforce Planning Planning Planning and and Strategy Strategy Service Operations Operations  Function  Executive Office  Planning Function Management Management and Strategy Executive Office Planning and Strategy  Function Function Management Management Information Technology          Information Technology            Infrastructure Infrastructure Management Management End End User User Support Support Infrastructure Infrastructure Development Development Application Application Maintenance Maintenance Application Application Development Development & & Implement. Implement. Quality Quality Assurance Assurance Risk Risk Management Management IT IT Business Business Planning Planning Enterprise Enterprise Architecture Architecture Planning Planning Emerging Emerging Technologies Technologies Function Function Management Management Procurement Procurement            Supply Supply Data Data Management Management Requisition Requisition and and PO PO Processing Processing Supplier Scheduling Supplier Scheduling Receipt Receipt Processing Processing Compliance Compliance Management Management Customer Customer Management Management Sourcing Sourcing Execution Execution Supplier Supplier Management Management and and Development Development Sourcing Sourcing & & Supply Supply Base Base Strategy Strategy Function Function Strategy Strategy and and Performance Performance Management Management Function Function Management Management Marketing* Marketing*      Marketing Marketing Communication Communication Brand Brand and and Product Product Management Management Planning and Planning and Strategy Strategy Market Market Research Research and and Analytics Analytics Function Management Function Management Capture FTEs and Costs as defined regardless of where they are organizationally located
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NSU’s NSU’s 17 17 Academic Academic Institutes Institutes  Brief Therapy Institute  Lifelong Learning Institute  Community Resolution Services  National Coral Reef Institute  Criminal Justice Institute Brief Therapy Institute   The Eye Institute Community Resolution Services  Options National Coral Reef Institute  Guy Harvey Research Institute Criminal Justice Institute     Hudson The EyeInstitute Instituteof Entrepreneurship and Executive Education Guy Harvey Research Institute  Institute of Trauma and Victimization Hudson Institute of International Institute Franchise Entrepreneurship andfor Executive  Education Education  Southeast Rumbaugh-Goodwin Institute for Institute for Cross-  Institute of Trauma and Victimization   Tyler Institute Institute The Language  International Institute for Franchise Education   Women’s Tyler Institute Resource       National Lifelong Learning Institute Institute for Educational Rumbaugh-Goodwin Institute for National Institute for Educational Cancer Research Options CancerCounseling Research Cultural Southeast Institute for Cross South Florida Ocean Cultural Counseling Measurement Center  South Florida Ocean The LanguageCenter Institute Measurement Institute Women’s Resource Institute
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Portfolio of Risky + Riskless Asset • To calculate the portfolio return and portfolio variance when we combine the risky asset and riskless asset, we can use the usual formulas, noting that the volatility of the riskfree rate is zero. • Portfolio Return = w1 Rf + w2 Rp. • Portfolio Variance = (w1)^2 (0) + (w2 )^2 (vol of risky asset)^2 + 2 (correlation) (w1 )(w2 ) (0)(vol of risky asset). • Portfolio Volatility = w2 *(vol of risky asset). • This simplification in the formula for the portfolio volatility occurs because the vol of the riskfree asset is zero. • To understand the tradeoff between risk and return, we can graph the portfolio return vs the the portfolio volatility. • The following graph shows this graph for the case when the mean return for the riskfree asset is 5%, the mean return for the risky asset is 12%, and the volatility of the risky asset is 15%. 6
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Portfolio of Risky + Riskless Asset • To calculate the portfolio return and portfolio variance when we combine the risky asset and riskless asset, we can use the usual formulas, noting that the volatility of the riskfree rate is zero. • Portfolio Return = w1 Rf + w2 Rp. • Portfolio Variance = (w1)^2 (0) + (w2 )^2 (vol of risky asset)^2 + 2 (correlation) (w1 )(w2 ) (0)(vol of risky asset). • Portfolio Volatility = w2 * (vol of risky asset). • This simplification in the formula for the portfolio volatility occurs because the vol of the riskfree asset is zero. • To understand the tradeoff between risk and return, we can graph the portfolio return vs the the portfolio volatility. • The following graph shows this graph for the case when the mean return for the riskfree asset is 5%, the mean return for the risky asset is 12%, and the volatility of the risky asset is 15%.
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Understanding the Equity Summary Score Methodology 2 3. Calculate – The normalized analysts’ recommendations and the accuracy weightings are combined to create a single score. For the largest 1,500 stocks by market capitalization, these scores are then forcibly ranked against all the other scores to create a standardized Equity Summary Score on a scale of 0.1 to 10.0 for the 1,500 stocks. This means that there will be a uniform distribution of scores provided by the model thereby assisting investors in evaluating the largest stocks (in terms of Understanding the Equity Summary Score Methodology Provided By 2 capitalization), which typically make up the majority of individual investors’ portfolios. Finally, smaller cap stocks are then slotted into this distribution without a force ranking, and may not exhibit the same balanced distribution. The Equity Summary Score and associated sentiment ratings by StarMine are: 0.1 to 1.0 ‐ very bearish 1.1 to 3.0 ‐ bearish 3.1 to 7.0 ‐ neutral 7.1 to 9.0 ‐ bullish 9.1 to 10.0 ‐ very bullish Other Important Model Factors:  An Equity Summary Score is only provided for stocks with ratings from four or more independent research providers.  New research providers are ramped in slowly by StarMine to avoid rapid fluctuations in Equity Summary Scores. Indep. research providers that are removed from Fidelity.com will similarly be ramped out slowly to avoid rapid fluctuations. Notes on Using the Equity Summary Score: The Equity Summary Score and sentiment ratings are ratings of relative, not absolute forecasted performance. The StarMine model anticipates that the highest rated stocks, those labeled “Very Bullish” as a group, may outperform lower rated groups of stocks. In a rising market, most stocks may experience price increases, and in a declining market, most stocks may experience price declines  Proper diversification within a portfolio is critical to the effective use of the Equity Summary Score. Individual company performance is subject to a broad range of factors that cannot be adequately captured in any rating system.  Larger differences in Equity Summary Scores may lead to differences in future performance. The sentiment rating labels should only be used for quick categorization. An 8.9 Bullish is closer to a 9.1 Very Bullish than a 7.1 Bullish.  For a customer holding a stock with a lower Equity Summary Score, there are many important considerations (for example, taxes) that may be much more important than the Score.  The Equity Summary Score by StarMine does not predict future performance of underlying stocks. The Equity Summary Score model has only been in production since August 2009 and therefore no assumptions should be made about how the model will perform in differing market conditions. Understanding the Equity Summary Score Methodology Provided By 3 How has the Equity Summary Score performed? Transparency is a core value at Fidelity, and that is why StarMine provides Fidelity with a view of the historical aggregate performance of the Equity Summary Score across all covered stocks each month. You can use this to obtain insight into the performance and composition of the Equity Summary Score. In addition, the individual stock price performance during each period of the Equity Summary
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MORE REFERENCES Kandel, Shmuel, and Stambaugh, Robert F., 1996, On the Predictability of Stock Returns: An Asset Allocation Perspective, Journal of Finance, 51(2), 385-424. Erb, Claude B., Harvey, Campbell R., and Viskanta, Tadas E., 1994, Forecasting International Equity Correlations, Financial Analysts Journal, 50, 32-45. Cumby, Robert, Stephen Figlewski and Joel Hasbrouck, (1994) "International Asset Allocation with Time Varying Risk: An Analysis and Implementation", Japan and the World Economy, 6(1), 1-25 Ang, Andrew, and Bekaert, Geert, 1999, International Asset Allocation with Time-Varying Correlations, NBER Working Paper 7056. Ang, Andrew, and Chen, Joe, 2001, Asymmetric Correlations of Equity Portfolios, forthcoming, Journal of Financial Economics. Brandt, Michael W., 1999, Estimating Portfolio and Consumption Choice: A Conditional Euler Equations Approach, Journal of Finance, 54(5), 1609-1645. Campbell, Rachel, Koedijk, Kees, and Kofman, Paul, 2000, Increased Correlation in Bear Markets: A Downside Risk Perspective, Working Paper, Faculty of Business Administration, Erasmus University Rotterdam. Aijt-Sahalia, Yacine, and Brandt, Michael W., 2001, Variable Selection for Portfolio Choice, Journal of Finance, 56(4), 1297-1355. Longin, Fran»cois, and Solnik, Bruno, 2001, Extreme Correlation of International Equity Markets, Journal of Finance, 56(2), 649-676. Kraus, Alan, and Litzenberger, Robert H., 1976, Skewness Preference and the Valuation of Risk Assets, Journal of Finance, 31(4), 1085-1100. Markowitz, H., 1952, Portfolio Selection, Journal of Finance, 7, 77-99. 8
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Alternative Decomposition ROE = (NOPAT/Equity) – (NIntAT /Equity) = (NOPAT/Net Assets) x (Net Assets/Equity) – (NIntAT)/Net Debt) x (Net debt/Equity). If we rewrite Net Assets as Net Debt + Equity, we get the following: ROE = (NOPAT/Net Assets) x (1+Net Debt/Equity) – NIntAT/Net Debt x (Net debt/Equity). Defining NOPAT/Net Assets as Operating ROA and combining terms with NIntAT/Net Debt (which is the effective interest rate after tax on debt), we get ROE = Op ROA + (Op ROA – Eff Int Rate after tax) x (Net Debt/Equity) =Op ROA + (Op ROA – Eff Int Rate after tax) x Net fin leverage = Op ROA + Spread x Net financial leverage
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It’s really not this bad! Office Officeofofthe theDirector Director National NationalInstitute Institute on onAging Aging National NationalInstitute Institute on onAlcohol AlcoholAbuse Abuse and andAlcoholism Alcoholism National NationalInstitute Institute ofofAllergy Allergyand and Infectious InfectiousDiseases Diseases National NationalInstitute Institute ofofArthritis Arthritisand and Musculoskeletal Musculoskeletal and andSkin SkinDiseases Diseases National NationalCancer Cancer Institute Institute Eunice EuniceKennedy Kennedy Shriver ShriverNational NationalInstitute Institute ofofChild ChildHealth Healthand and Human HumanDevelopment Development National NationalInstitute Instituteon on Deafness Deafnessand andOther Other Communication Communication Disorders Disorders National NationalInstitute Institute ofofDental Dentaland and Craniofacial Craniofacial Research Research National NationalInstitute Institute ofofDiabetes Diabetesand and Digestive Digestiveand and Kidney Diseases Kidney Diseases National NationalInstitute Institute on onDrug DrugAbuse Abuse National NationalInstitute Institute ofofEnvironmental Environmental Health Sciences Health Sciences National NationalEye Eye Institute Institute National NationalInstitute Institute ofofGeneral General Medical Sciences Medical Sciences National NationalHeart, Heart, Lung, Lung,and andBlood Blood Institute Institute National NationalHuman Human Genome GenomeResearch Research Institute Institute National NationalInstitute Institute ofofMental MentalHealth Health National NationalInstitute Institute ofofNeurological Neurological Disorders Disordersand and Stroke Stroke National NationalInstitute Institute ofofNursing NursingResearch Research National NationalCenter Center for forComplementary Complementary and Alternative and Alternative Medicine Medicine John JohnE. E.Fogarty Fogarty International International Center Center National NationalCenter Center for forResearch Research Resources Resources National NationalLibrary Library ofofMedicine Medicine National NationalInstitute Instituteofof Biomedical BiomedicalImaging Imaging and andBioengineering Bioengineering Clinical ClinicalCenter Center Understanding NIH Center Centerfor for Information Information Technology Technology Slide 10 National NationalInstitute Instituteon on Minority MinorityHealth Healthand and Health Disparities Health Disparities Center Centerfor for Scientific ScientificReview Review 8 November 2017
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Debt Overhang and Negotiating with Creditors Similarly, excessive debt leading to debt overhang and inhibited investment can lead to a stronger negotiating position vis-à-vis bondholders. The debt-overhang problem may be so severe that creditors can actually benefit from forgiving a portion of the debt. With excessively high levels of debt, the risk of default is large and the market value of debt is well below its face value. If the creditors forgive part of the debt in this situation, the lower debt burden helps realign the interests of the equity holders and the creditors. The firm’s effort and investment will rise, increasing the total value of the firm and the market value of the remaining debt. If this effect is strong enough, the market value of the remaining debt may be even higher than the market value of the total debt in the absence of debt forgiveness, in which case debt relief will ultimately benefit the creditors themselves. http://www.clevelandfed.org/research/commentary/2010/2010-7.cfm
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Understanding the Equity Summary Score Methodology 3 Score sentiment can be viewed on the symbol ‐ specific Analyst Opinions History and Performance pages. 1. Equity Summary Scorecard Summary: A Total Return by Sentiment chart shows how a theoretical portfolio of stocks in each of the five sentiments performed within the selected time period. For example, the bright green bar represents the performance of all the Very Bullish stocks. Provided for comparison is the performance of First Call Consensus Recommendation of Strong Buy, the average of all stocks with an Equity Summary Score, and the S&P 500 Total Return Index. 2. Performance by Sector and Market Cap Fidelity customers have access to more in‐depth analysis of the Equity Summary Score universe and performance. The Total Return by Sector chart provides the historical performance of a theoretical portfolio of Very Bullish stocks in each sector over the time period selected. For comparison, the average performance of all stocks with an Equity Summary Score during the time period by sector is also provided. The Total Return by Market Cap shows the historical performance by market capitalization for stocks with an Equity Summary Score of Very Bullish as compared to typical market benchmarks as well the average for the largest 500 stocks, the next smaller 400 stocks, and the next 600 smaller stocks by market capitalization. The last table is the Equity Summary Score universe distribution for the reporting month by market capitalization and score. Understanding the Equity Summary Score Methodology Provided By 4 Important Information on Monthly Performance Calculations by StarMine  The set of covered stocks and ratings are established as of the second to last trading day of a given month. For a stock to be included in the scorecard calculations, it must have an Equity Summary Score as of the second to the last trading day of the month. The positions are assumed to be entered into on the last trading day of the month, and, if necessary, exited on the last trading day of the next month.  The Scorecard calculations use the closing price as of the last trading day of the month. The Scorecard calculations assume StarMine exits old positions and enters new ones at the same time at closing prices on the last trading day of a given month. The calculations assume 100% investment at all times.  The 1‐Year total return by Market Cap table breakpoints for the largest 500 stocks (large cap), the next 400 (mid cap), and the next 600 (small cap), are also established as of the end of trading on the second to the last trading day of a given month.  The calculation of performance assumes an equal dollar weighted portfolio of stocks ie theoretical investment allocated to each stock is the same  Performance in a given month for a given stock is calculated as [starting price (starting price meaning closing price as of the last day of trading of the prior month) less the ending price, divided by the starting price.] Prices incorporate any necessary adjustments for dividends and corporate actions (e.g. splits or spinoffs).  The performance of a given tier of rated stocks is calculated by adding up the performance of all stocks within that given tier, then dividing by the total number of stocks in a given tier.  The process for the next month begins again by looking at Equity Summary Scores as of the second‐to‐last trading day of the new month, placing stocks into their given tiers, and starting the process all over again.  It is important to note that the “theoretical” portfolio rebalancing process that StarMine performs between the end of one month and the beginning of the next month is, for the purposes of the scorecard, a cost‐free process. This means that no commissions or other transaction costs (e.g. bid/ask spreads) are included in the calculations.  If a customer attempted to track portfolios of stocks similar to those included in the scorecard, their returns would likely differ due to transaction costs as well as different purchase and sale prices received when buying or selling stocks.
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1-7 Ethical Standards for CostManagement Analysts Cost-management Cost-management analysts analysts must must maintain maintain high high standards standards of of ethical ethical behavior behavior because because they they can can control control the the information information used used for for important important strategic strategic management management decisions. decisions. The The IMA IMA(Institute (Institute of of Management ManagementAccountants) Accountants) Statement Statement of of Ethical Ethical Professional Professional Practice, Practice, published published for for its its management management accountant accountant membership, membership, offers offers guidance guidance for for ethical ethical behavior behavior applicable applicable to to cost-management cost-management analysts. analysts.
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National Institutes of Health Office Officeof ofthe theDirector Director National NationalInstitute Institute on onAging Aging National NationalInstitute Institute on onAlcohol AlcoholAbuse Abuse and andAlcoholism Alcoholism National NationalInstitute Institute of ofAllergy Allergyand and Infectious InfectiousDiseases Diseases National NationalInstitute Institute of ofArthritis Arthritisand and Musculoskeletal Musculoskeletal and andSkin SkinDiseases Diseases National NationalCancer Cancer Institute Institute National NationalInstitute Institute of ofChild ChildHealth Health and andHuman Human Development Development National NationalInstitute Instituteon on Deafness Deafnessand andOther Other Communication Communication Disorders Disorders National NationalInstitute Institute of ofDental Dentaland and Craniofacial Craniofacial Research Research National NationalInstitute Institute of ofDiabetes Diabetesand and Digestive Digestiveand and Kidney KidneyDiseases Diseases National NationalInstitute Institute on onDrug DrugAbuse Abuse National NationalInstitute Institute of ofEnvironmental Environmental Health HealthSciences Sciences National NationalEye Eye Institute Institute National NationalInstitute Institute of ofGeneral General Medical MedicalSciences Sciences National NationalHeart, Heart, Lung, Lung,and andBlood Blood Institute Institute National NationalHuman Human Genome GenomeResearch Research Institute Institute National NationalInstitute Institute of ofMental MentalHealth Health National NationalInstitute Institute of ofNeurological Neurological Disorders Disordersand and Stroke Stroke National NationalInstitute Institute of ofNursing NursingResearch Research National NationalInstitute Instituteof of Biomedical BiomedicalImaging Imaging and andBioengineering Bioengineering National NationalCenter Center for forComplementary Complementary and andAlternative Alternative Medicine Medicine Fogarty Fogarty International International Center Center National NationalCenter Center for forResearch Research Resources Resources National NationalLibrary Library of ofMedicine Medicine National NationalCenter Centeron on Minority Health Minority Healthand and Health HealthDisparities Disparities Clinical ClinicalCenter Center Center Centerfor for Information Information Technology Technology Center for Scientific Review
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Measuring a firm’s financing mix  The simplest measure of how much debt and equity a firm is using currently is to look at the proportion of debt in the total financing. This ratio is called the debt to capital ratio: Debt to Capital Ratio = Debt / (Debt + Equity) This is also called the Debt to Assets Ratio  Debt includes all interest bearing liabilities, short term as well as long term.  Often, it’s convenient to use a Long-Term Debt/Capital ratio – many of the agency problems with LT debt don’t exist with short-term debt because of the short maturity.  Equity can be defined either in accounting terms (as book value of equity) or in market value terms (based upon the current price). The resulting debt ratios can be very different. P.V. Viswanath 9
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