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

LOS B requires us to:

describe a company’s stakeholder groups, and compare the interests of stakeholder groups

 

A company has many stakeholders, who are affected by the affairs of the company. Some of the important stakeholders and their respective interests are:

1.1.        Shareholders

a.  They are the individuals, institutions, or entities that own the shares of common or ordinary stock of the company.

b.  The main focus of the shareholders is on growth in profits that maximizes the value of the company’s equity.

c.  The shareholders exercise control over the company through voting rights for the appointment of a board of directors and for specific resolutions.

d.  There are two types of shareholders: controlling shareholders and non-controlling shareholders.

e.  The controlling shareholders are the holders of a specified minimum percentage of shares that entitle them to voting power to control and elect the board of directors.

f.  The non-controlling shareholders are the minority shareholders. These shareholders do not have any significant control over the management or board of directors of the company.

1.2.        Creditors / Lenders

There are the parties to whom the company owes money. These typically include the bondholders and the banks.
The creditors exercise control over the company through the debt covenants.

1.3.        Managers & Employees

a.  When we talk about the managers, we typically talk about the senior executives and higher levels of management having maximum control over the operations of the company.
These people are usually remunerated through equity-based options and on the basis of the performance of the company. Thus, they are motivated to maximize their revenues through the value of an equity-based of company.

b.  On the other hand, lower-level employees desire decent wages and job security. To ensure the same, they also, at times, form unions.

c.  There may be a conflict of interest between managers and employees, and managers and shareholders.

1.4.        Board of Directors

a.  The board of directors is elected to protect the interest of the shareholders, provide strategic direction, and monitor the company and management’s performance.

b.  The board of directors may be organized into two types of structures, depending upon the needs of the company, i.e. one-tier structure, and two-tier structure.

c.  In a one-tier structure, there is a single board of executive as well as non-executive directors.

d.  Whereas, in a two-tier structure, there is a supervisory board of non-executive directors that oversees the management board of executive directors.

1.5.        Customers

a.  Customers are the buyers of the goods and services produced by the company.

b.  The main motive of the customers is product satisfaction. They should get maximum satisfaction for the value paid by them for the goods and services purchased.

c.  Some customers may have an interest in the long-term viability of the company.

1.6.        Suppliers

a.  Suppliers are the parties from whom the company purchases the input material and services.

b.  The suppliers are primarily interested in the liquidity and solvency of the company. This decides the timeliness of payments received by them.

1.7.        Government & Regulators

The government and regulators work towards ensuring the fairness in working of the company. They usually seek to protect the interests of other stakeholders and the general public at large. They are there to ensure the well-being of the economy at large.

 

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