CFA< Level I Corporate Issuers Tips

It’s crucial to understand a business's financing choices and why they make certain decisions as a financial analyst. The Corporate Issuers topic covers a wide range of information, including specific terminology and calculations. It is also viewed as one of the more approachable topics but it’s still important to gain a strong foundational knowledge during your CFA^® Level I exam prep.

Table of Contents

• Corporate Structures and Ownership

• Introduction to Corporate Governance and Other ESG Considerations

• Business Models & Risks

• Capital Investments

• Working Capital and Liquidity

• Cost of Capital-Foundational Topics

• Capital Structure

• Measures of Leverage

How To Study for CFA Level I Corporate Issuers Topic

It is easy to focus on the calculations in Corporate Issuers, but as demonstrated in the reading summaries, these only make up a small proportion of the syllabus. You should not expect the majority of Corporate Issuers' questions to include calculations. Instead of trying to memorize each calculation:

1. Focus on the interpretation of the numbers rather than the calculations

2. Practice as many questions as you can using CFA Level I Qbanks

3. Throughout your prep stay organized to keep track of your progress

CFA Level I 6-Month Study Progress Tracker

What is a Learning Outcome Statement (LOS) for the CFA Exam?

Learning Outcome Statements while studying for a CFA exam refer to specific skills and concepts you should possess within an exam topic whereas exam topics describe the broader body of knowledge you should have. For example, the Corporate Issuers exam topic at Level I has lots of LOSs that you’ll need to learn.

An example of a CFA LOS for Corporate Issuers is “describe the principal-agent relationship and conflicts that may arise between stakeholder groups.”

Why CFA Candidates Need To Learn Corporate Issuers

As an analyst, it is important to be able to understand aspects such as financing choices from a business’s perspective, understanding the options available to them, and why they may make certain decisions.

Corporate Issuers covers a wide range of day-to-day concepts for business such as:

• Business models

• Types of finance available

• The differences between fixed and variable costs

How Much of the CFA Exam Tests Corporate Issuers?

The Corporate Issuers topic represents 6%-9% of the Level I exam, which is approximately 10-16 questions. It is tested in the afternoon session, within the Portfolio Management and Analysis Functional Area, alongside Portfolio Management.

Is the CFA Level I Corporate Issuers Topic Hard?

The Corporate Issuers topic at Level I tends to be viewed by most candidates as one of the more approachable topics. It covers a wide range of information, some terminology, and some computational.

You will of course form your own opinion but anecdotally we find many candidates feel more comfortable in this area the first time working through the content than some others.

Try Today’s Featured Level I Practice Question

When Should CFA Level I Candidates Study Corporate Issuers?

Corporate Issuers should be studied after Quantitative Methods to ensure you are comfortable with the CF and TVOM calculator functions, which will be important in one of the readings here.

Aside from that, it would be sensible to study this before Equity and Fixed Income as it introduces the cost of capital and different types of funding available.

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CFA Level I Corporate Issuers Topic Readings

Below are overviews of each Level I Corporate Issuers readings and what you are expected to learn.

Corporate Structures and Ownership

This is a short reading which ensures you are comfortable with the different types of business structure (e.g. sole proprietorship, partnerships, and corporations), the differences between public and private companies, and the financial claims different lenders and owners have over the company’s net assets.

Introduction to Corporate Governance and Other ESG Considerations

This reading considers a company’s different stakeholders and why conflicts may arise between them. A definition of corporate governance develops into a discussion of how this can be used to manage stakeholder conflicts as well as the general benefits and risks of effective or poor corporate governance.

There is a short section introducing ESG (environmental, social, and governance) considerations for investment analysis.

Business Models & Risks

A business model offers some detail about how a company proposes to make money including identifying potential customers and explaining how the firm will sell its product amongst other important points.

This reading gives an overview of business models, as well as the key business and financial risks a company may face.

Capital Investments

This reading looks at how a firm’s management allocates the capital available to various activities most efficiently. After introducing the capital allocation process, this covers the first calculations of Corporate Issuers:

• NPV (Net Present Values)

• IRR (Internal Rate of Return)

There is a consideration of pitfalls within capital allocation as well as examples of real options.

Working Capital and Liquidity

What is working capital, how is it financed and what relation does it have to liquidity? These are all questions that are answered in this reading, as well as revisiting (from FSA) measures that can be used to compare the liquidity position of two companies, such as the current ratio and receivables turnover.

Cost of Capital-Foundational Topics

The focus of this reading is how to calculate the cost of various types of finance - debt, preferred stock, equity and the weighted average cost of capital (WACC). WACC weighs all the long term finance a business holds by (most commonly) the target capital structure.

Capital Structure

This reading goes into more detail on the target capital structure mentioned above, including how it might change, theories regarding the optimal capital structure, and how competing stakeholder interests impact capital structure decisions.

Measures of Leverage

The difference between operating and financial leverage is explained in this reading, as well as various types of risk which affect these leverages:

• Business risk

• Sales risk

• Operating risk

• Financial risk

The calculations for the degree of operating leverage (DOL) and degree of financial leverage (DFL) are part of the syllabus, including being able to interpret these measures. The reading finishes looking at how to calculate the breakeven level for a company.

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Calculator Basics for the CFA Level I Exam

You will be familiar with the CF and TVOM buttons from other topic areas such as Quantitative Methods. If you have the BA II Plus Professional, it is also useful to get to know the breakeven function for Corporate Issuers (2nd 6) which can really speed up breakeven and degree of operating/financial leverage questions.

CFA Level I Exam Quiz

Answer these five questions to test your readiness for the Level I Exam.

Is the Corporate Issuers Topic the Same for CFA Level I and Level II?

Corporate Issuers is a slightly smaller topic in the Level II exam than in the Level I exam. The focus is less numerical at Level II than at Level I and instead on factors that would affect the valuations of projects and/or companies such as dividend and share repurchase policies, and ESG (Environmental, Social, and Governance) factors.

Ready To Start Preparing For Corporate Issuers?

Looking for more guidance on how to prepare for Corporate Issuers? Enroll in one of our CFA Level I Premium study packages to receive expert instruction, CFA Program study materials, and more. Give yourself the best chance to prepare, practice, and perform on the CFA exam.

Keep Reading For More CFA Level I Topic Overviews

• Quantitative Methods

• Economics

• Financial Statement Analysis

• Equity Investments

• Fixed Income

• Derivatives

• Alternative Investments

• Portfolio Management

• Ethical and Professional Standards