CFA (Chartered Financial Analyst) Corporate Issuers Syllabus

Corporate Issuers syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Corporate Issuers in CFA (Chartered Financial Analyst), not a summary of it.

1. 1

   Corporate Structures and Governance

   4 topics

   • Organizational forms and corporate features
   • Corporate governance and stakeholder management
     • Conflicts among stakeholder groups
     • Board structures and shareholder rights
   • ESG considerations in investment analysis
   • Business models and value creation
2. 2

   Capital Investment and Structure

   4 topics

   • Capital investment decisions
     • NPV, IRR, and project evaluation
     • Real options and capital allocation principles
   • Cost of capital
     • WACC components and estimation
     • Cost of equity, debt, and country risk premium
   • Capital structure and Modigliani-Miller propositions
   • Measures of leverage (operating, financial, total)
3. 3

   Working Capital and Corporate Restructuring

   3 topics

   • Working capital and liquidity management
   • Capital structure decisions in practice
   • Corporate restructuring
     • Mergers, acquisitions, and divestitures
     • Valuation and analysis of restructuring actions

Corporate Issuers flashcards for CFA (Chartered Financial Analyst)

19 of 52 cards from the Corporate Issuers deck — real questions with worked answers.

1. What are the three main organizational (legal) forms a business can take, ordered by increasing separation of ownership and liability?

   Sole proprietorship (owner has unlimited liability), partnership (general/limited partners), and corporation (limited liability, separate legal entity). Separation of ownership from control and limited liability increase from proprietorship to corporation.

2. What distinguishes a limited liability company (LLC) or limited partnership from a general partnership?

   In an LLC or limited partnership, at least some owners have liability limited to their invested capital, whereas in a general partnership all partners have unlimited personal liability for the firm's obligations.

3. Define corporate governance.

   The system of internal controls, processes, and procedures by which a company is managed; it balances the interests of shareholders and other stakeholders while seeking to minimize and manage conflicting interests among them.

4. What two core problems does corporate governance try to address (the two theories of governance)?

   Shareholder theory (focus on maximizing shareholder wealth) and stakeholder theory (managing the interests of all stakeholders). Governance mitigates the principal-agent problem and conflicts among stakeholder groups.

5. Name the principal stakeholder groups of a corporation.

   Shareholders, the board of directors, managers/employees, creditors, suppliers, customers, governments/regulators, and the community/society.

6. Describe the principal-agent (agency) conflict between shareholders and managers.

   Managers (agents) may pursue their own interests—excess perks, empire building, risk aversion, or short-termism—rather than maximizing shareholder (principal) wealth, due to information asymmetry and separation of ownership and control.

7. What is the typical conflict between shareholders and creditors (bondholders)?

   Shareholders may prefer higher-risk projects and more leverage (which raise default risk but can increase equity value), while creditors prefer lower risk and stable cash flows to ensure repayment. This is the shareholder-debtholder conflict (asset substitution / risk shifting).

8. What is a one-tier versus a two-tier board structure?

   A one-tier (unitary) board has a single board with both executive and non-executive (independent) directors. A two-tier board separates a supervisory board (non-executives overseeing management) from a management board (executives running operations).

9. List common shareholder rights.

   Voting for directors and major matters, receiving dividends when declared, voting on mergers/charter changes, the right to inspect certain records, preemptive rights to maintain proportional ownership, and residual claims on assets in liquidation.

10. Contrast statutory voting and cumulative voting for electing directors.

    Under statutory voting, a shareholder casts one vote per share for each board seat. Under cumulative voting, total votes (shares times seats) can be concentrated on one or a few candidates, improving minority shareholders' ability to elect a director.

11. What does ESG stand for, and give an example issue in each category?

    Environmental, Social, and Governance. Example issues: Environmental—carbon emissions/climate; Social—labor practices, data privacy, community relations; Governance—board independence, executive pay, shareholder rights.

12. Name common approaches to incorporating ESG into investment analysis.

    Negative/exclusionary screening, positive/best-in-class screening, ESG integration, thematic investing, impact investing, and active ownership/engagement and proxy voting.

13. What are the key components of a company's business model?

    How it creates value: who its customers are, what it sells, how it prices and delivers, its channels, and its cost structure—essentially how the firm generates and captures value (revenue and margins) for stakeholders.

14. Distinguish capital budgeting from financing decisions.

    Capital budgeting (investing) decides which long-term projects/assets to invest in; financing decisions determine the mix of debt and equity used to fund those investments. Corporate Issuers covers both the investing and financing sides.

15. List the principles of capital budgeting analysis.

    Decisions are based on incremental after-tax cash flows (not accounting income); the timing of cash flows matters; cash flows are analyzed on an opportunity-cost basis ignoring sunk costs but including externalities; and financing costs are reflected in the discount rate, not the cash flows.

16. How are sunk costs and opportunity costs treated in capital budgeting?

    Sunk costs (already incurred, unrecoverable) are excluded from the analysis. Opportunity costs (the value of foregone alternative use of a resource) are included as relevant cash flows.

17. State the formula for the net present value (NPV) of a project.

    $$NPV = \sum_{t=0}^{N} \frac{CF_{t}}{(1+r)^{t}}$$ where $CF_t$ is the after-tax cash flow in period $t$ and $r$ is the required rate of return (cost of capital).

18. What is the NPV decision rule for an independent project?

    Accept the project if $NPV > 0$ (it adds value); reject if $NPV < 0$. For mutually exclusive projects, choose the one with the highest positive NPV.

19. Define the internal rate of return (IRR).

    The discount rate that makes a project's NPV equal to zero: $$\sum_{t=0}^{N} \frac{CF_{t}}{(1+IRR)^{t}} = 0.$$ It is the project's implied compound annual return.

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