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For
CPA PART I
SECTION 1
Financial Accounting
Commercial Law
Entrepreneurship and Communication
SECTION 2
Economics
Management Accounting
Public Finance and Taxation
CPA PART II
SECTION 3
Company Law
Financial Management
Financial Reporting
SECTION 4
Auditing and Assurance
Management Information Systems
Quantitative Analysis
CPA PART III
SECTION 5
Strategy, Governance and Ethics
Advanced Management Accounting
Advanced Financial Management
SECTION 6
Advanced Public Finance and Taxation
Advanced Auditing and Assurance
Advanced Financial Reporting
Wednesday 20 June 2018
Monday 4 July 2016
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Tuesday 17 November 2015
Tuesday 27 October 2015
Tuesday 1 September 2015
Equity Investment analysis-CIFA SECTION 4
CHAPTER TWO
INDUSTRY AND COMPANY
ANALYSIS
Introduction
Industry
analysis is a type of investment research that begins by focusing on the status
of an industry or an industrial sector.
Why is this important? Each industry is different, and using one cookie-cutter approach to analysis is sure to create problems. Imagine, for example, comparing the P/E ratio of a tech company to that of a utility. Because you are, in effect, comparing apples to oranges, the analysis is next to useless.
In each section we'll take an in-depth look at the different valuation techniques and buzz words used in a particular industry, complete a 5-forces analysis on the state of the market and point you in the direction of industry-specific resources.
Why is this important? Each industry is different, and using one cookie-cutter approach to analysis is sure to create problems. Imagine, for example, comparing the P/E ratio of a tech company to that of a utility. Because you are, in effect, comparing apples to oranges, the analysis is next to useless.
In each section we'll take an in-depth look at the different valuation techniques and buzz words used in a particular industry, complete a 5-forces analysis on the state of the market and point you in the direction of industry-specific resources.
Porter's 5 Forces
Analysis
If
you are not familiar with the five competitive forces model, here is a brief
background on who developed it, and why it is useful.
The model originated from Michael E. Porter's 1980 book "Competitive Strategy: Techniques for Analyzing Industries and Competitors." Since then, it has become a frequently used tool for analyzing a company's industry structure and its corporate strategy.
In his book, Porter identified five competitive forces that shape every single industry and market. These forces help us to analyze everything from the intensity of competition to the profitability and attractiveness of an industry. Figure 1 shows the relationship between the different competitive forces.
The model originated from Michael E. Porter's 1980 book "Competitive Strategy: Techniques for Analyzing Industries and Competitors." Since then, it has become a frequently used tool for analyzing a company's industry structure and its corporate strategy.
In his book, Porter identified five competitive forces that shape every single industry and market. These forces help us to analyze everything from the intensity of competition to the profitability and attractiveness of an industry. Figure 1 shows the relationship between the different competitive forces.
- Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry.
- Power of Suppliers - This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power. Here are a few reasons that suppliers might have power:
·
Existing loyalty to major brands
·
Incentives for using a particular buyer (such
as frequent shopper programs)
·
High fixed costs
·
Scarcity of resources
·
High costs of switching companies
·
Government restrictions or legislation
- Power of Buyers - This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company's margins and volumes, then the customer hold substantial power. Here are a few reasons that customers might have power:
·
There
are very few suppliers of a particular product
·
There
are no substitutes
·
Switching
to another (competitive) product is very costly
·
The
product is extremely important to buyers - can\'t do without it
·
The
supplying industry has a higher profitability than the buying industry
- Availability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. Here are a few factors that can affect the threat of substitutes:
·
Small
number of buyers
·
Purchases
large volumes
·
Switching
to another (competitive) product is simple
·
The
product is not extremely important to buyers; they can do without the product
for a period of time
·
Customers
are price sensitive
- Competitive Rivalry - This describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:
·
The
main issue is the similarity of substitutes. For example, if the price of
coffee rises substantially, a coffee drinker may switch over to a beverage like
tea.
·
If
substitutes are similar, it can be viewed in the same light as a new entrant.
USES
OF INDUSTRY ANALYSIS
Company analysis and industry analysis are closely
interrelated. Company and industry analysis together can provide insight into sources
of industry revenue growth and competitors' market shares and thus the future
of an individual company's top-line growth and bottom-lin profitability.
Industry
analysis is useful for:
·
Understanding a company's business and
business environment
·
Identifying active equity investment
opportunities.
·
Formulating an industry or sector
rotation strategy.
·
Portfolio performance attribution.
There are three main
approaches to classifying companies:
1.
Products and/or service supplied.
This is the main approach to industry classification. Companies are categorized based on
- Application of ICT in taxation: iTax, samba system
iTAX is a modern computer-based
assessment and collection software used by (local) governments. It is a
computing and accounting system for state revenues (levies, taxes) which stores
all relevant (credit and debit) data in individual accounts in a data base, and
thus helps monitor and control all tax transactions. iTAX provides a convenient
and efficient way to improve revenue collection, transparency in fiscal
administration and management of local and national tax authorities. In
conjunction with a personalized taxpayer identification number, the tax
authority using iTAX can automate most of the levying processes and minimize the
scope for tax fraud.
Technically, iTAX is a completely
integrated modular system for taxation with an open source database, which can
handle all types of taxes. iTAX supports the revenue authority in registration,
assessment, collection, accounting, debt management, auditing, tax monitoring,
and reporting.
Introducing
an IT-based tax administration and information system
iTAX is a comprehensive package, but
any system needs customization and adjustments. This chapter describes what it
takes to make iTAX successful and sustainable.
Making iTAX work includes those
processes that establish the capabilities for change management, the necessary
capacity development, and corresponding institutional reforms.
The actual approach to introducing a
system like iTAX has to be based on the situation at hand. Therefore, any
effort to “make iTAX work“has to begin with an individual project design
iTAX can be implemented as a pilot
project, starting first in a special region/pro-
vince or only for some specific
taxes. It may also be tested first in an institutionalpilot project, such as a
Large Taxpayer Department. Depending on the IT infra- structure and the IT
literacy of operators, piloting can be done within a time frame of about three
months. Since the basic functionality of iTAX has already been developed,
future implementations will mainly be limited to the customization ofthe
software. This might further speed up the process.
The introduction of an IT solution
in general and of iTAX in particular, as well as any related institutional and
administrative reform, requires foremost political will.
All relevant stakeholders have to be
involved and should have an actual say in the process.
Sunday 30 August 2015
FINANCIAL MANAGEMENT: CHAPTER 11 - ISLAMIC FINANCE
History of Islamic finance
The
financial industry has historically played an important role in the economy of
every society. Banks mobilize funds from investors and apply them to
investments in trade and business. The history of banking is long and varied,
with the financial system as we know it today directly descending from
Florentine bankers of the 14th – 17th century. However, even before the
invention of money, people used to deposit valuables such as grain, cattle and
agricultural implements and, at a later stage, precious metals such as gold for
safekeeping with religious temples.
Around
the 5th century BC, the ancient Greeks started to include investments in their
banking operations. Temples still offered safe-keeping, but other entities
started to offer financial transactions including loans, deposits, exchange of
currency and validation of coins. Financial services were typically offered
against the payment of a flat fee or, for investments, against a share of the
profit.
The
views of philosophers and theologians on interest have always ranged from an
absolute prohibition to the prohibition of usurious or excess interest only,
with a bias towards the absolute prohibition of any form of interest. The first
foreign exchange contract in 1156 AD was not just executed to facilitate the
exchange of one currency for another ata forward date, but also because profits
from time differences in a foreign exchange contract were not covered by canon
laws against usury.
In
a time when financial contracts were largely governed by Christian beliefs
prohibiting interest on the basis that it would be a sin to pay back more or
less than what was lent, this was a major advantage.
Islamic banking is
banking or banking activity that is consistent with the principles of sharia (Islamic law) and its practical
application through the development of Islamic economics. As such, a more
correct term for Islamic banking is sharia compliant finance.
Sharia prohibits acceptance
of specific interest or fees for loans of money (known as riba, or
usury), whether the payment is fixed or floating. Investment in businesses that
provide goods or services considered contrary to Islamic principles (e.g. pork
or alcohol) is also haraam
("sinful and prohibited"). Although these prohibitions have been
applied historically in varying degrees in Muslim countries/communities to
prevent unIslamic practices, only in the late 20th century were a number of
Islamic banks formed to apply these principles to private or semi-private
commercial institutions within the Muslim community.
As of 2014, sharia compliant financial institutions
represented approximately 1% of total world assets By 2009, there were over 300
banks and 250 mutual funds around the world complying with Islamic principles
and as of 2014 total assets of around $2 trillion were sharia-compliant.
According to Ernst & Young, although Islamic Banking still makes up only a
fraction of the banking assets of Muslims,
it has been growing faster than banking assets as a whole, growing at an
annual rate of 17.6% between 2009 and 2013, and will grow by an average of
19.7% a year to 2018
Islamic Finance and banking is as old as the religion itself with its principles primarily derived from the Quran. An early market economy and an early form of mercantilism, sometimes called Islamic capitalism, was developed between the eighth and twelfth centuries. The monetary economy of the period was based on the widely circulated currency the gold dinar, and it tied together regions that were previously economically independent.
A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, partnership (mufawada, including limited partnerships, or mudaraba), and forms of capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, (Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate., trusts, transactional accounts, loaning, ledgers and assignments. Organizational enterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.
Usury
in Islam
The word "riba" has been defined as interest, usury, excess,
increase or addition, which according to Shariah terminology, implies any excess
compensation without
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