CFA® Equity Valuation
What is CFA Level 1 Equity Valuation?
This topic explores information used to make investment decisions, including buy and sell recommendations. The uses of technical and fundamental analysis are discussed as the basis for investment decisions. Methods for estimating a company’s intrinsic value are discussed in detail. Equity valuation also teaches about the functions and characteristics of a well-functioning financial system, market efficiency, behavioral finance, and various approaches to valuing public and private equity.
CFA Equity Valuation (EV) is a heavily weighted topic on the Level 1 exam and is not only fundamental to passing Level 1 but succeeding in the CFA Program overall.
The CFA Institute’s Level I Equity Valuation topic has an exam weight of 10-12% of the total exam content, so that approximately 18-22 questions of the 180 CFA Level I exam questions focus on this topic.
|Topic Weight||No. of Readings||No. of Formulas||No. of Questions|
Syllabus, Readings and Changes Overview
The weight of the Equity Valuation topic increased from 2019 to 2022. Since 2021, it has fluctuated between 10-12%.
The CFA Institute’s Level 1 curriculum for 2022 includes 60 total readings out of which 6 (around 10%) of those readings focus on Equity Valuation (i.e., Reading 33-38). The readings are divided into the following two study sessions
|Equity Investments Level 1 Changes|
|Market Organization and Structure||No Changes|
|Security Market Indexes||No Changes|
|Overview of Equity Securities||No Changes|
|Introduction to Industry and Company Analysis||Revision|
|Equity Valuation: Concepts and Basic Tools||No Changes|
|11||3||30||A structural overview of financial markets and their operating characteristics is provided. Overview includes markets for equities, fixed income, derivatives, and alternative investments. Various asset types, market participants, and types of trades within these markets and ecosystems are described. The calculation, construction, and use of security market indexes are discussed together with market efficiency: how well market prices reflect available information.|
|12||3||33||The focus is on the characteristics, analysis, and valuation of equity securities, including public and private equities. The various industry classification approaches for global equities and useful frameworks for conducting industry and individual company analysis are presented. Discussion includes the rationale and implementation of the three main equity valuation approaches (present value, multiplier, and asset-based).|
For a more comprehensive discussion of LOS visit the official CFAI Level 1 syllabus page and select the desired session under “2022 Level 1 Study Sessions”.
Market Organization and Structure
This reading provides an overview of how various types of markets operate and the actors who participate in them. The overview includes markets for equities, fixed income, derivatives, and alternative investments.
Security Market Indexes
This reading focuses on different types of indexes, how they are constructed, and what they are used for.
This reading presents a detailed discussion on whether market prices reflect the intrinsic value of securities.
Overview of Equity Securities
This reading provides a qualitative analysis of the features that distinguish equity securities from other asset classes.
Industry and Company Analysis
This reading looks at the comparative frameworks that are commonly used to analyze equities.
Equity Valuation: Concepts and Basic Tools
This reading introduces valuation models and their appropriate applications, with details about how investors’ estimates of intrinsic value can inform trading decisions.
Study Tips for Level 1 CFA Equity Valuation
Here are some hints/steps when reviewing Equity Valuation:
- Readings 33-35 provide a backdrop to the actual valuation models discussed in Readings 36-38. If you have some background in finance, you may find that you can spend less time on this first Study Session.
- Regardless of your background, be prepared to spend more time on Readings 36-38, which focus more on actual valuation models and applications.
- Don’t skip this topic since it has a relatively high topic weight given the number of readings.