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

1.   What are some of the main features of corporations?

The main features of corporations are:

1.1.         Legal Identity of a Corporation

a.  Corporations have legal identities separate from their owners. This means they have the rights and responsibilities of an individual. Therefore, they can enter contracts, borrow money, hire employees, pay taxes, etc.

b.  Corporations are subject to jurisdiction, depending upon the geographic location where:

b.1.  the company is incorporated,

b.2.  the business is conducted,

b.3.  the company receives its finance from.

c.  These jurisdictions could state the rules for:

c.1.  registration,

c.2.  reporting and disclosures of financial statements and other required disclosures.

c.3.  Capital market activities such as issue of shares, share trading, and investment.

1.2.         Owner-Manager Separation

a.  There is usually a marked separation between the management and ownership of the corporation. The shareholders are the owners of the corporation.

b.  The shareholders appoint the management through a vote in general meetings to appoint the board of directors. The voting rights of the shareholders are attached to their shares.

c.  The board of directors then appoints the executive-level management. The executive level management is responsible for activities of the corporation such as investment, finance, operations, etc.

d.  The management is responsible for working in the best interest of the owners and other stakeholders. Otherwise, the shareholders can exercise their voting rights to change the management.

e.  Since the owners are not responsible for the management of the business, there can be an unlimited number of owners. This allows the corporation to raise a large amount of capital, offering a huge growth potential.

1.3.         What are the liabilities of owners/shareholders of a corporation?

a.  Corporations are generally limited liability entities. This means that the liability of the owners is limited to the amount of capital invested by the owners.

b.  On the downside, the price of the shares may fall up to zero, but not any further.

c.  The shareholders are not responsible for the debt of the company. However, if any shareholder has specifically undertaken the guarantee of debt, then they would be liable for the same.

d.  Since the capital of most corporations is divided into shares of smaller unit size. Hence, the risk and return on these shares is widely distributed. Some corporations issue shares of different classes with different risk and return characteristics.

1.4.         What are the major sources of finance for a corporation?

a.  There are two ways in which corporations finance their operations:

        a.1.  Equity. Equity is financed either through the issue of shares or through reinvestment of profits. Equity investors receive returns in the form of dividends and capital appreciation.

        a.2.  Debt. Debt finance can be obtained through loans, issuing bonds, leases, etc. The debt is usually repaid along with prespecified interest in the intervals as agreed in the terms of the debt. Debt may have a lien over the assets of the company, which are presented as collaterals.

b.  Both debt and equity can be divided into small tradable units by a corporation called shares or bonds. These instruments are traded in the secondary market or stock exchange.

c.  Investment in these instruments is usually made by individuals, institutions such as mutual funds, pension funds, banks, governments, etc.

1.5.         How are corporations taxed?

a.  The taxability of corporations depends on the jurisdiction to which these corporations are subject to.

b.  The tax regimes of corporations vary from country to country. However, in most countries corporations pay taxes on their profits.

c.  Sometimes the tax is also payable on distributions of profits or the dividends. These taxes are sometimes known as dividend distribution tax. This is also double taxation. But in some jurisdictions the individuals receiving these dividends are not supposed to pay taxes on the dividends received, if the corporation has already paid tax at the time of dividend distribution.

d.  Though double taxation increases the burden of taxes on corporations, it is still the preferred form of business entity, especially if the business requires large amount of capital that cannot be provided by individuals or small group of investors.

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