Corporate Finance

Corporate Finance in the CFA Level 1 curriculum focuses on how companies make financial decisions to maximize shareholder value. The core principles include capital budgeting, capital structure, and working capital management. Capital budgeting involves evaluating investment opportunities using techniques like Net Present Value (NPV), Internal Rate of Return (IRR), payback period, and profitability index. These methods help determine whether projects will create value for shareholders by comparing expected returns to the cost of capital. Capital structure decisions address how firms finance their operations through debt and equity. The optimal capital structure balances the tax benefits of debt against financial distress costs. The Modigliani-Miller theorems provide a theoretical foundation, while practical considerations include the weighted average cost of capital (WACC), leverage effects on earnings per share, and the impact of financial flexibility. Working capital management focuses on short-term financial decisions regarding current assets and liabilities. This includes optimizing cash management, accounts receivable, inventory, and accounts payable to maintain liquidity while maximizing efficiency. Dividend policy examines how firms return cash to shareholders through dividends or share repurchases, considering factors like signaling effects, clientele effects, and tax implications. The curriculum also covers corporate governance - the system of rules and practices by which companies are directed and controlled. This includes board structure, executive compensation, and shareholder rights. Mergers, acquisitions, and corporate restructuring are examined as strategic options for growth or value creation, along with methods for valuing target companies and assessing synergies. These corporate finance concepts are fundamental for CFA candidates as they provide the framework for understanding how financial decisions impact firm value and shareholder wealth.

Corporate Finance in the CFA Level 1 curriculum focuses on how companies make financial decisions to maximize shareholder value. The core principles include capital budgeting, capital structure, and …

Concepts covered: Corporate Governance, Cost of Capital, Capital Budgeting, Dividend and Share Repurchases, Working Capital Management