Page 42 - FINAL CFA I SLIDES JUNE 2019 DAY 9

Session Unit 9:
33. Financial Statement Analysis: Applications

LOS 33.d: Describe the use of financial statement analysis in screening for potential equity
investments., p325

Investment portfolio holding styles (investment strategies) could include:
• Growth, Income or Value Stock;
• Low price/earnings stocks;

• Low price/sales stocks.
tanties

These often selected using accounting ratio analysis: multiple criteria/ratios are used because a
screen based on a single factor/ratio can include firms with other undesirable characteristics.
• e.g. a company with a low p/e ratio may also have operating losses, declining sales prospects,

or very high leverage.

Back-testing -using a specific set of criteria to screen historical data to determine how

portfolios based on those criteria would have performed.
• There is, of course, no guarantee that screening criteria that have identified stocks that

outperformed in the past will continue to do so.
• Analysts must also pay special attention to the potential effects of survivorship bias, data-

mining bias, and look-ahead bias when evaluating the results of back-testing