Course Content
Organizational Forms, Corporate Issuer Features, and Ownership
This is Reading 22 of CFA Level 1, Corporate Issuers, 2024 course. This reading consists of three LOSs, i.e.,: a. compare the organizational forms of businesses b. describe key features of corporate issuers c. compare publicly and privately owned corporate issuers
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LOS A: Compare the organizational forms of businesses.
LOS B: Describe key features of corporate issuers
LOS C: Compare publicly and privately owned corporate issuers
INTRODUCTION TO CORPORATE GOVERNANCE AND OTHER ESG CONSIDERATIONS
This chapter is covered under study session 10, reading 31 of the study materials as provided by the CFA Institute.
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Introduction
LOS A: Describe corporate governance
00:00
LOS B: Company’s Stakeholders
08:17
LOS C: Principal-Agent Relationship
08:13
LOS D: Stakeholder’s Management
02:39
LOS E: Mechanisms of Stakeholders Management
09:25
LOS F: Board of Directors and Committees
06:57
LOS G: Factors Affecting Stakeholders Relationship and Corporate Governance
04:43
LOS H: Risks of Poor Corporate Governance & Benefits of Corporate Governance
03:14
LOS I: Analysts’ Consideration
04:32
Factors Affecting Company & ESG Implementation Methods
05:00
USES OF CAPITAL
This chapter is covered under study session 9, reading 28 of the study materials as provided by the CFA Institute. After reading this chapter, the candidate should be able to: a. a describe the capital allocation process and basic principles of capital allocation; b. demonstrate the use of net present value (NPV) and internal rate of return (IRR) in allocating capital and describe the advantages and disadvantages of each method; c. describe expected relations among a company’s investments, company value, and share price; d. describe types of real options relevant to capital investment; e. describe common capital allocation pitfalls.
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Introduction
LOS A: Capital Budgeting Process
20:19
LOS B: NPV and IRR
19:58
LOS C: Company’s Investment, Value, and Share Price
06:42
LOS D: Real options
08:54
LOS E: Capital Allocation Pitfalls
05:42
Sources of Capital
This topic is covered under LOS 29 of study session 9. After reading this chapter, you should be able to: a. describe types of financing methods and considerations in their selection; b. describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position; c. compare a company’s liquidity position with that of peer companies; d. evaluate choices of short-term funding.
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Corporate Financing Options
24:21
Sources and Factors That Influence Liquidity
10:28
Comparing Liquidity Position
08:23
Short Term Funding
06:59
Cost of Capital
This chapter is covered under study session 10, reading 30 of the study material as provided by the CFA institute. After reading this chapter, the candidate should be able to: a) calculate and interpret the weighted average cost of capital (WACC) of a company; b) describe how taxes affect the cost of capital from different capital sources; c) calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach; d) calculate and interpret the cost of noncallable, nonconvertible preferred stock; e) calculate and interpret the cost of equity capital using the capital asset pricing model approach and the bond yield plus risk premium approach; f) explain and demonstrate beta estimation for public companies, thinly traded public companies, and nonpublic companies; g) explain and demonstrate the correct treatment of flotation costs.
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Introduction
LOS A: Weighted Average Cost of Capital
12:25
LOS B: The Effect of Taxes on Capital Budgeting Decision
08:33
LOS C: Calculating Cost of Debt
08:27
LOS D: Calculating Cost of Preferred Stock
04:01
LOS E: Calculating Cost of Common Equity
12:40
LOS F: Estimating Company & Project β (Beta)
11:16
LOS J: Country Risk
LOS K: Marginal Cost of Capital Schedule
LOS L: Floatation Cost
Measures of Leverage
This chapter is covered under study session 11, reading 34 of the study material as provided by the CFA institute. After reading this chapter, the candidate should be able to: a. Define and explain leverage, business risk, sales risk, operating risk, and financial risk and classify a risk, given a description. b. Calculate and interpret the degree of operating leverage, the degree of financial leverage, and the degree of total leverage. c. Analyze the effect of financial leverage on a company’s net income and return on equity. d. Calculate the breakeven quantity of sales and determine the company’s net income at various sales levels. e. Calculate and interpret the operating breakeven quantity of sales.
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Introduction
LOS A: Risk and Components of Risk
LOS B and C: Degree of Leverage
LOS D: Break-Even Points
Impact of Leverage on Bankruptcy
Working Capital Management
This chapter is covered under study session 11, reading 35 of the study material as provided by the CFA institute. After reading this chapter, the candidate should be able to: a. describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position; b. compare a company’s liquidity measures with those of peer companies; c. evaluate the working capital effectiveness of a company based on its operating and cash conversion cycles, and compare the company’s effectiveness with that of peer companies; d. describe how different types of cash flows affect a company’s net daily cash position; e. calculate and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company’s short-term investment policy guidelines; f. evaluate a company’s management of accounts receivable, inventory, and accounts payable over time and compared to peer companies; g. evaluate the choices of short-term funding available to a company and recommend a financing method. 
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Introduction
LOS A: Liquidity Management
LOS C: Cash Conversion Cycle
LOS D: Impact of Cash Flow on Net Daily Cash Position
LOS E: Yield, Returns, and Policies
LOS F: Accounts Receivables, Inventories & Accounts Payable
LOS G: Short Term Funding
Corporate Issuers
About Lesson

a.  The main objective of working capital management is to maintain a balance between:

     i.  maintaining the adequate funds for day-to-day operations of the business, and

    ii.  ensuring maximum return by investing the assets in the most productive ways.

Liquidity Management CFA Level 1 Study Notes

b.  In order to have adequate cash for the operations of the company, the management must maintain adequate levels of cash. Investment in the short-term highly liquid securities or credit reserves comes in handy at the time when the liquidity of the firm is at risk. They act as shock absorbers for the fluctuating working capital needs.

c.  And in order to maximize the returns, the management needs to invest in the projects or the assets that provide the maximum return, even though they may not be easily liquefiable.

1.1.           Meaning of Liquidity

Liquidity is the extent to which a company can meet its short-term obligations using the assets that can be readily transformed to cash, either by sale or financing.

1.2.           Primary Sources of Liquidity

The main sources of liquidity for a company are:

a.  Ready Cash Balances. These include the cash in hand, balances in a bank account, and near-cash securities (having maturity of fewer than ninety days or one year).

b.  Short Term Funds. These include trade credits/accounts payable, bank’s line of credit, short-term investment portfolios having marketable securities.

c.  Cash Flow Management. It is the management’s effectiveness in maintaining the balance between the adequacy of funds and returns. It includes the cash credit cycle management and having a collection and payment system having a certain level of centralization.

1.3.           Secondary Sources of Liquidity

For the day-to-day needs of working capital, the companies mainly resort to their primary sources of liquidity. But in the case of fluctuations or in emergency situations, the companies may also resort to secondary sources. Some of the most important secondary sources of liquidity are:

a.  Debt Contracts. The companies can finance their liquidity with the help of long-term debt contracts; it is not one of the desired sources, though. It can also do it through renegotiating the existing contracts to increase the amount of debt or to reduce the number of monthly payments for interest and principals.

b.  Liquidating Assets. The management can meet its liquidity needs by selling off some of the assets. This is also not a much-desired source, though.

c.  Bankruptcy Protection / Reorganization. This can help in providing finance through liquidating the company or selling off unnecessary assets.

1.4.           Factors That Influence the Liquidity

a.  There are two kinds of factors that influence liquidity. The ones that drag the liquidity and those that pull the liquidity.

b.  Some of the factors that drag the liquidity are: receipt lags, a high amount of uncollectible receivables, huge obsolete inventory lying in the stocks, tight credit due to lack of short-term credit available.

c.  The main factors that pull liquidity are cash leaving early due to making early payments, reduced credit limits, limits on the short-term line of credits due to resting requirements, etc., low liquidity position as a result of growth or aggressive cash management.

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