M6 — CM-EIP: Securities, CIS (EIP) and Foreign Exchange
Company Analysis & Financial Statements
This chapter teaches you to judge a listed company the way a fundamental analyst does: place it in its economy and industry, read its four financial statements and the auditor's report, and turn the numbers into ratios for liquidity, gearing, profitability, efficiency and valuation. The exam mixes definitions with short calculations, so you need each formula, the right denominator, and the trap that makes a wrong option look right. It also tests how Singapore listed companies report: SFRS(I) accounts and SGX's half-yearly minimum under Mainboard Rule 705.
8 sections·~6 min read
✓Checked against the IBF CM-EIP syllabus chapter 5 (checked 13 Sep 2026); SGX Mainboard Rules 704(5), 705 (version from 29 Oct 2025) and 709A on rulebook.sgx.com; ACRA accounting standards guide and ASC announcement on SFRS(I) 18; IFRS Foundation Singapore jurisdiction profile; SSA 705 (Revised) and SSA 706 (Revised) published by ISCA; standard ratio definitions, checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
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Must-know for the exam
✓Top-down analysis runs economy, then industry, then company. Bottom-up starts with the company and gives the macro view less weight.
✓Porter's five forces: threat of new entrants, supplier power, buyer power, threat of substitutes, rivalry among competitors.
✓Assets = liabilities + equity. The statement of financial position is 'as at' a date; the income statement and cash flow statement cover 'the year ended'.
✓Income statement order: revenue, gross profit, operating profit (EBIT), profit before tax, net profit.
✓Cash flows fall into operating, investing and financing activities. Depreciation reduces profit but not cash, so the indirect method adds it back.
✓SSA 705 (Revised): material but not pervasive misstatement gives a qualified opinion; material and pervasive gives an adverse opinion; material and pervasive lack of evidence gives a disclaimer. An Emphasis of Matter does not modify the opinion (SSA 706).
✓SGX-listed Singapore-incorporated companies use SFRS(I), identical to IFRS, for annual periods from 1 Jan 2018. Mainboard Rule 709A accepts SFRS(I)s, IFRS or US GAAP.
✓As at 13 Sep 2026, Mainboard Rule 705: full-year results within 60 days; quarterly or half-year results within 45 days. Quarterly is mandatory only after a modified audit opinion or going-concern material uncertainty, with a one-year grace period.
✓Current ratio = current assets / current liabilities. Quick ratio = (current assets - inventory) / current liabilities.
✓Margins divide by revenue. ROA = net profit / total assets. ROE = net profit / shareholders' equity.
✓Inventory days and payable days use cost of sales; receivable days use revenue. Cash conversion cycle = inventory days + receivable days - payable days.
✓DuPont: ROE = net margin x asset turnover x equity multiplier (total assets / equity). Free cash flow = operating cash flow - capital expenditure.
Fundamental analysis: economy, industry, company
•Fundamental analysis estimates what a business is worth from its earnings, assets, cash flows and prospects, then compares that value with the share price. Technical analysis works from the price chart instead. Expect at least one question that tests the difference.
•Top-down: forecast the economy (growth, inflation, interest rates, currency), choose the industries that benefit, then pick the best companies in them.
•Bottom-up: start with companies that have strong fundamentals, and give the economic and sector view less weight.
•Industry analysis uses two frameworks. Porter's five forces explain how much profit an industry can keep: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry among existing firms. The industry life cycle explains growth and dividend behaviour.
•Start-up: small sales, often losses, high risk.
•Growth: fastest sales growth, new entrants, profits reinvested, low dividends.
•Company-level qualitative factors matter as much as ratios. Look for a durable competitive advantage (a moat: brand, switching costs, network effects, cost advantage, licences), a business model with reliable revenue, and management with a record of investing capital well and reporting candidly.
•Trap: a large one-off gain is not a moat, and interest rates are not one of Porter's five forces. Takeaway: top-down narrows from the economy to the company; the five forces and the life cycle describe the industry in between.
•A complete set of financial statements has four primary statements plus notes. Singapore listed companies prepare them under SFRS(I). The ASC has issued SFRS(I) 18, which will replace SFRS(I) 1-1 as the presentation standard.
•Statement of financial position (balance sheet), as at the reporting date: assets = liabilities + equity. Current items are realised or settled within 12 months or the normal operating cycle; the rest are non-current.
•Income statement (statement of profit or loss), for the period: revenue - cost of sales = gross profit; - operating expenses = operating profit (EBIT); - finance costs = profit before tax; - tax = net profit.
•Statement of cash flows, for the period: operating (cash from customers, paid to suppliers and staff), investing (buying or selling long-term assets), financing (share issues, borrowing and repaying loans).
•Statement of changes in equity: movements in share capital, retained earnings and reserves, including profit, dividends and share issues.
•The statements link through equity and cash. Closing retained earnings = opening retained earnings + net profit - dividends. Closing cash and cash equivalents in the cash flow statement reconcile to the cash shown on the balance sheet.
•Trap: issuing shares is a financing inflow, not investing, and dividends reduce retained earnings without being an expense. Takeaway: balance sheet is a snapshot; income and cash flow statements are films of the year.
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