Chartered Financial Analyst (CFA) 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 Chartered Financial Analyst (CFA), not a summary of it.

1. 1

   Corporate Structures and Governance

   3 topics

   • Organizational Forms and Corporate Features
     • Sole proprietorships, partnerships, and corporations
     • Separation of ownership and control
   • Corporate Governance and Stakeholder Management
     • Stakeholder groups and principal-agent conflicts
     • Board structure and governance mechanisms
     • Risks and benefits of governance practices
   • ESG Considerations
     • Environmental, social, and governance factors in analysis
     • ESG integration methods
2. 2

   Capital Investments and Working Capital

   3 topics

   • Capital Investments and the Investment Decision
     • Types of capital projects
     • NPV, IRR, and the investment decision criteria
     • Real options in capital budgeting
   • Working Capital and Liquidity Management
     • Cash conversion cycle
     • Sources of short-term financing
     • Managing receivables, payables, and inventory
   • Business Models and Risks
     • Features of business models and revenue drivers
     • Operating and financial leverage
3. 3

   Capital Structure and Cost of Capital

   3 topics

   • Cost of Capital Foundations
     • Weighted average cost of capital (WACC)
     • Cost of debt, preferred, and equity
     • Country risk premium and beta estimation
   • Capital Structure Theory
     • Modigliani-Miller propositions with and without taxes
     • Static trade-off theory and costs of financial distress
     • Pecking order theory and signaling
   • Measures of Leverage
     • Degree of operating leverage
     • Degree of financial and total leverage
4. 4

   Corporate Actions and Restructuring (Levels II/III)

   3 topics

   • Dividends and Share Repurchases
     • Dividend policy theories and clientele effects
     • Share repurchase methods and impact on EPS
   • Mergers, Acquisitions, and Corporate Restructuring
     • Motivations and types of mergers
     • Valuation and bid evaluation
     • Divestitures, spin-offs, and takeover defenses
   • Corporate Restructuring Analysis
     • Evaluating restructuring actions
     • Impact on cost of capital and valuation

Corporate Issuers flashcards for Chartered Financial Analyst (CFA)

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

1. What are the three key features that distinguish business organizational forms?

   Legal identity, owner-manager relationship, and owner liability. (Many texts add: access to financing, taxation, and the degree of business continuity/transferability.)

2. Define a sole proprietorship and state its owner's liability.

   A business owned and run by one person who is not legally distinct from the business. The owner has unlimited personal liability for all business obligations and reports profits on their personal tax return (pass-through taxation).

3. In a general partnership, how is liability and management shared among partners?

   All partners have unlimited joint (and often several) liability for partnership obligations, and each partner can participate in management. Profits pass through to partners' personal tax returns.

4. How does a limited partnership differ from a general partnership?

   A limited partnership has at least one general partner with unlimited liability who manages the firm, plus limited partners whose liability is capped at their invested capital and who do not participate in management.

5. What defines a corporation (limited company) as a distinct organizational form?

   It is a separate legal entity from its owners, granting shareholders limited liability (loss capped at investment), separation of ownership and management, transferable ownership, and indefinite life.

6. Contrast a private (limited) company with a public (limited) company.

   A private company's shares are not traded on a public exchange and have transfer restrictions with fewer disclosure requirements; a public company's shares trade freely on exchanges with stringent regulatory and disclosure obligations.

7. What is meant by 'double taxation' of corporate profits?

   Corporate profits are taxed at the company level, and then dividends distributed to shareholders are taxed again at the shareholder level. Pass-through entities (partnerships, S-corps) avoid this.

8. Define corporate governance.

   The system of internal controls, processes, and procedures by which a company is managed; it balances the interests of stakeholders and provides the framework for attaining the company's objectives.

9. What is the principal-agent (agency) problem in corporate governance?

   A conflict arising when an agent (manager) acting on behalf of a principal (shareholder) pursues their own interests rather than the principal's, due to differing risk tolerances, information asymmetry, and incentives.

10. List the primary stakeholder groups in stakeholder management.

    Shareholders, creditors (debtholders), the board of directors, managers/employees, customers, suppliers, and governments/regulators.

11. What is the fundamental conflict between shareholders and debtholders?

    Shareholders may prefer riskier projects (upside accrues to them, downside is limited by liability), while debtholders prefer lower risk and stability to ensure repayment of principal and interest.

12. What is the difference between a one-tier and a two-tier board structure?

    A one-tier board has a single board combining executive and non-executive directors; a two-tier board separates a supervisory (non-executive) board from a management (executive) board.

13. What does ESG stand for, and what does each component capture?

    Environmental, Social, and Governance. Environmental covers climate, resource use, pollution; Social covers labor, human rights, community, product safety; Governance covers board structure, executive pay, shareholder rights, and ethics.

14. Name three common approaches to integrating ESG into investment analysis.

    Negative (exclusionary) screening, positive/best-in-class screening, ESG integration into fundamental analysis, thematic investing, impact investing, and active ownership/engagement.

15. What is a 'material' ESG factor?

    An ESG issue that is reasonably likely to significantly affect a company's financial condition, operating performance, or risk profile, and therefore relevant to investment decisions.

16. What are the four steps in the capital budgeting / investment decision process?

    1) Generate investment ideas, 2) Analyze project proposals (estimate cash flows), 3) Create the firm-wide capital budget, and 4) Monitor decisions and conduct a post-audit.

17. List the key principles of capital budgeting cash-flow analysis.

    Decisions are based on incremental after-tax cash flows (not accounting income); timing matters (time value); sunk costs are ignored; externalities and opportunity costs are included; and financing costs are excluded (reflected in the discount rate).

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

    Accept the project if $NPV > 0$ and reject if $NPV < 0$. NPV is computed as $$NPV = \sum_{t=0}^{N} \frac{CF_t}{(1+r)^t}$$

19. What is the IRR decision rule, and what is IRR?

    IRR is the discount rate that makes $NPV = 0$: $$\sum_{t=0}^{N} \frac{CF_t}{(1+IRR)^t} = 0$$ Accept an independent project if $IRR > r$ (the required rate of return).

See more Corporate Issuers flashcards →

Planning Corporate Issuers for Chartered Financial Analyst (CFA)

Corporate Issuers (Chartered Financial Analyst (CFA)) FAQ