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Chapter 1: Introduction to Equity Investments at Level II
- 1.1 Scope of Level II Equity Topics
- 1.2 Transition from Level I: Key Differences
- 1.3 Vignette-Style Question Strategies
- 1.4 Essential Terms and Concepts Review
Chapter 2: Equity Valuation—Applications and Processes
- 2.1 Defining Intrinsic Value and Mispricing
- 2.2 Going Concern vs. Liquidation Values
- 2.3 Relevance of Different Definitions of Value
- 2.4 Vignette Example: Selecting a Valuation Approach
Chapter 3: Return Concepts and Required Rates of Return
- 3.1 Estimating the Equity Risk Premium
- 3.2 Using CAPM, Expanded CAPM, and Other Models
- 3.3 Top-Down vs. Bottom-Up Return Estimation
- 3.4 Vignette Exercise: Determining Discount Rates
Chapter 4: Industry and Company Analysis—Foundations
- 4.1 Identifying Industry Structures and Classifications
- 4.2 Competitive Positioning and Five Forces Analysis
- 4.3 Sector-Specific Growth Drivers and Risks
- 4.4 Practice Vignette: Industry & Competitive Factors
Chapter 5: Equity Market Organization and Efficiency
- 5.1 Market Classification: Developed, Emerging, and Frontier
- 5.2 Market Efficiency vs. Behavioral Biases
- 5.3 Implications for Active and Passive Strategies
- 5.4 Vignette: Market Efficiency Debates
Chapter 6: Dividend Discount Models—Basic Concepts
- 6.1 The Rationale for Dividend-Based Valuation
- 6.2 Single-Period vs. Multi-Period DDM
- 6.3 Constant Growth (Gordon) Model
- 6.4 Practice Vignette: Single-Stage Dividend Scenarios
Chapter 7: Dividend Discount Models—Advanced
- 7.1 Two-Stage and Three-Stage Models
- 7.2 H-Model and Spreadsheet Modeling
- 7.3 Estimating Terminal Value in DDM
- 7.4 Vignette Drill: Multi-Stage Dividend Forecasting
Chapter 8: Free Cash Flow Valuation—Fundamentals
- 8.1 FCFF vs. FCFE: Concepts and Differences
- 8.2 Normalizing Earnings and Adjusting for Non-Recurring Items
- 8.3 Building a Basic Free Cash Flow Model
- 8.4 Practice Vignette: FCFE Calculation
Chapter 9: Free Cash Flow Valuation—Extended Techniques
- 9.1 Multi-Stage FCFF and FCFE Models
- 9.2 Forecasting Capital Expenditures and Working Capital
- 9.3 Sensitivity Analysis in FCF Valuation
- 9.4 Vignette Example: Two-Stage FCFE
Chapter 10: Market-Based Valuation—Price Multiples
- 10.1 P/E Ratios: Trailing, Forward, and PEG
- 10.2 Economic Rationale for P/B, P/S, and P/CF
- 10.3 Interpreting Multiples for Different Industries
- 10.4 Vignette: Choosing the Right Price Multiple
Chapter 11: Market-Based Valuation—Enterprise Value Multiples
- 11.1 EV/EBITDA and EV/EBIT: Calculations and Uses
- 11.2 Strengths and Weaknesses of EV-Based Measures
- 11.3 Unusual Adjustments and Normalization
- 11.4 Vignette Exercise: EV/EBITDA vs. P/E
Chapter 12: Residual Income Valuation—Overview
- 12.1 Economic Value Added (EVA) and Market Value Added (MVA)
- 12.2 Fundamental Principles of Residual Income Models
- 12.3 Relation to Book Value and Other Measures
- 12.4 Practice Vignette: Basic Residual Income Calculations
Chapter 13: Residual Income Valuation—Advanced Topics
- 13.1 Single-Stage vs. Multi-Stage Residual Income Models
- 13.2 Continuing Residual Income and Terminal Value
- 13.3 Adjusting for Off-Balance-Sheet Items
- 13.4 Vignette: Complex Residual Income Scenario
- 13.5 Challenges and Limitations in Residual Income Valuation
- 13.6 Best Practices in Implementation
Chapter 14: Private Company Valuation—Foundations
- 14.1 Unique Features of Private vs. Public Companies
- 14.2 Purposes and Contexts for Private Company Valuation
- 14.3 Adjustments to Financial Statements and Normalized Earnings
- 14.4 Vignette Setup: Identifying Key Private Data
Chapter 15: Private Company Valuation—Income Approach
- 15.1 Capitalized Cash Flow Models
- 15.2 Excess Earnings Method
- 15.3 Choosing a Discount Rate for Private Firms
- 15.4 Vignette Practice: CAPM vs. Build-Up Approach
Chapter 16: Private Company Valuation—Market Approach
- 16.1 Guideline Public Company Method (GPCM)
- 16.2 Guideline Transactions Method (GTM)
- 16.3 Equity vs. Enterprise Value Multiples
- 16.4 Vignette: Selecting Comparable Transactions
Chapter 17: Private Company Valuation—Asset-Based Approach
- 17.1 Book Value Adjustments and Fair Value Estimations
- 17.2 Liquidation Value vs. Going-Concern Value
- 17.3 Minority vs. Controlling Shareholder Perspectives
- 17.4 Vignette: Reconciling Asset-Based Estimates
Chapter 18: Discounts and Premiums in Private Valuation
- 18.1 Control Premium and Minority Discounts
- 18.2 Marketability and Liquidity Discounts
- 18.3 Empirical Evidence and Judgment in Practice
- 18.4 Practice Vignette: Applying Adjustments
Chapter 19: Real Options and Emerging Equity Techniques
- 19.1 Types of Real Options in Equity Valuation
- 19.2 Valuation Steps for Real Options
- 19.3 Impact on DCF, FCF, and Residual Income Approaches
- 19.4 Vignette: Strategic Project Decision Making
Chapter 20: Industry and Competitive Analysis—Deep Dive
- 20.1 Life Cycle, Growth, and Decline Phases
- 20.2 Macro and Micro Drivers of Equity Prices
- 20.3 Putting It All Together: Top-Down Framework
- 20.4 Vignette: Sector-Specific Valuation Signals
Chapter 21: Mergers, Acquisitions, and Equity Valuation
- 21.1 Effects of M&A on Target and Acquirer Equity
- 21.2 Synergies, Purchase Premiums, and Deal Structures
- 21.3 Examining EPS Accretion/Dilution in M&A Vignettes
- 21.4 Vignette Exercise: Valuing M&A Transactions
Chapter 22: Sum-of-the-Parts and Other Approaches
- 22.1 Evaluating Conglomerates and Holding Companies
- 22.2 Segment Valuation Techniques
- 22.3 Cross-Border and Emerging Market Considerations
- 22.4 Practice Vignette: Breaking Down a Multisegment Firm
- 22.5 Common Pitfalls and Practical Considerations
- 22.6 Synergies and Overlaps Among Segments
Chapter 23: ESG and Sustainability in Equity Valuation
- 23.1 Environmental, Social, and Governance Factors
- 23.2 Integrating ESG Data into Traditional Models
- 23.3 Impact on Cost of Equity and Risk Premiums
- 23.4 Vignette Analysis: ESG-Driven Investment Cases
Chapter 24: Equity in Emerging and Frontier Markets
- 24.1 Unique Risks: Political, Liquidity, and Currency
- 24.2 Approaches for Data Scarcity and Volatility
- 24.3 Adjusting WACC for Country Risk
- 24.4 Vignette: Valuing a Frontier Market Company
Chapter 25: Behavioral Biases and Equity Market Anomalies
- 25.1 Behavioral Finance and the Efficient Market Hypothesis
- 25.2 Common Biases Affecting Equity Valuation
- 25.3 Identifying and Exploiting Market Anomalies
- 25.4 Vignette: Behavioral Factors in Estimating Intrinsic Value
Chapter 26: Integrating Macroeconomic Analysis
- 26.1 GDP Growth, Inflation, and Interest Rates
- 26.2 Monetary and Fiscal Policy Impacts on Equity Valuation
- 26.3 Sector Rotations Linked to Economic Cycles
- 26.4 Vignette: Top-Down Forecasting and Equity Selection
Chapter 27: Risk Management in Equity Portfolios
- 27.1 Diversification, Beta, and Alpha Concepts
- 27.2 Value at Risk (VaR) for Equity Investments
- 27.3 Stress Testing and Scenario Analysis
- 27.4 Vignette Practice: Evaluating Portfolio Risk and Returns
Chapter 28: Active vs. Passive Equity Strategies
- 28.1 Fundamentals of Active Management
- 28.2 Indexing and ETF Innovations
- 28.3 Factor Investing (Smart Beta)
- 28.4 Vignette Example: Strategy Selection
Chapter 29: Performance Evaluation and Attribution
- 29.1 Calculating Portfolio Returns and Benchmarks
- 29.2 Attribution Analysis: Sector, Style, and Security Selection
- 29.3 Risk-Adjusted Performance Metrics (Treynor, Sharpe, IR)
- 29.4 Item Set: Identifying Sources of Alpha
- 29.5 GIPS (Global Investment Performance Standards) Overview
Chapter 30: Corporate Actions and Equity Prices
- 30.1 Stock Splits, Dividends, and Share Repurchases
- 30.2 Rights Issues and Dilution Effects
- 30.3 Corporate Announcements and Market Efficiency
- 30.4 Vignette Analysis: Corporate Actions and Valuation
Chapter 31: Multifactor Models for Equity
- 31.1 Macroeconomic Factor Models
- 31.2 Fundamental Factor Models
- 31.3 Statistical Factor Models and Limitations
- 31.4 Practice Vignette: Factor Exposures
Chapter 32: Advanced Data Considerations
- 32.1 Handling Outliers and Non-Stationary Data
- 32.2 Normalizing Financial Statements for Valuation
- 32.3 Identifying Quality of Earnings Concerns
- 32.4 Vignette Drill: Data Scrubbing Techniques
Chapter 33: Comprehensive Valuation Case Studies
- 33.1 Combining DDM, FCFE, and Multiples
- 33.2 Reconciling Different Valuation Approaches
- 33.3 Sensitivity and Scenario Analysis in Practice
- 33.4 Full Vignette: Holistic Company Valuation
Chapter 34: Mixed Item Set Exercises—Part 1
- 34.1 Industry & Company Analysis Drills
- 34.2 Private Company and Residual Income Combo
- 34.3 Behavioral Bias and Emerging Market Twist
- 34.4 Detailed Solutions and Explanations
Chapter 35: Mixed Item Set Exercises—Part 2
- 35.1 ESG-Heavy Scenario with Factor-Based Valuation
- 35.2 Complex M&A and Sum-of-the-Parts Valuation
- 35.3 Final Composite Vignette: End-to-End Equity Evaluation
- 35.4 Wrap-Up: Exam Day Strategies and Key Takeaways

Chapter 27: Risk Management in Equity Portfolios

In this section

Diversification, Beta, and Alpha Concepts
Explore how diversification reduces unsystematic risk, learn about beta as a metric of market sensitivity, and uncover alpha generation strategies to enhance portfolio performance.
Value at Risk (VaR) for Equity Investments
Explore how VaR quantifies potential equity losses at specific confidence levels, including main calculation methods, assumptions, limitations, and practical applications.
Stress Testing and Scenario Analysis
Explore the nuances of stress testing and scenario analysis in equity portfolios, focusing on advanced risk management techniques, real-world applications, and best practices for finance professionals and CFA Level II candidates.
Vignette Practice: Evaluating Portfolio Risk and Returns
Explore a realistic equity portfolio scenario that examines sector exposures, risk management metrics, VaR simulations, and strategic actions to optimize return and control risk.

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Chapter 26: Integrating Macroeconomic Analysis

Chapter 28: Active vs. Passive Equity Strategies