13.b: company's stakeholder groups and compare interests of stakeholder groups.

• shareholder
• board of directors
• senior managers
• employees
• creditors
• suppliers

13.c: principal-agent and other relationships in corporate governance and the conflicts that may arise in these relationships.

• principal-agent conflict
• conflicts between
  
  • shareholders and managers or directors
  • groups of shareholders
  • creditors and shareholders
  • shareholders and other stakeholders

13.d: stakeholder management
13.e: mechanisms to manage stakeholder relationships and mitigate associated risks.

• stakeholder management
  
  1. legal infrastructure
  2. contractual infrastructure
  3. organizational infrastructure
  4. governmental infrastructure
• annual general meeting
• ordinary resolutions
  
  • special resolutions and extraordinary general
• voting
  
  • majority voting
  • cumulative voting

31. f: functions and responsibilities of a company's board of directors and its committees.

• Board structure
  
  • one-tier board
  • two-tier board
  • independent directors
  • lead independent director
  • staggered board
• Board responsibilities
• Board committees
  
  • audit committee
  • governance committee
  • nominations committee
  • compensation committee
  • risk committee
  • investment committee

31.g: market and non-market factors that affect stakeholder relationships and corporate governance

• activist shareholder
• proxy fight
• common-law system vs. civil law system

31.h: identify potential risks of poor corporate governance and stakeholder management and identify benefits from effective corporate governance

• risks of poor governance and stake holder management ex: accounting fraud, or simply poor record keeping
• benefits of effective governance and stakeholder management ex: reduce of risk of debt default or bankruptcy

31.i: describe factors relevant to the analysis of corporate governance and stakeholder management

• focus on ownership and voting structures, board composition, management remuneration, the composition of shareholders, strength of shareholder rights, and management of long-term risks
• company ownership and voting structure: dual class structure
• composition of a company's board
• management incentives and remuneration
• composition of shareholders
• relative strength of share holders' rights
• management of long-term risks

31.j: environmental and social considerations in investment analysis

• ESG investing ex: harm or potential harm to the environment, risk of loss due to environmental accidents, changing demographics of workforce, and repetitional risks from corrupt practices or human right abuses.
• ESG = sustainable investing = responsible investing = socially responsible investing

31.k: how environmental, social, and governance factors may used in investment analysis.

• negative screening ex: human right, environmental concerns or corruption
• postive screening
• relative/ best-in-class
• full integration
• thematic investing
• engagement/ active ownership
• green finance/ green bond
• overlay portfolio tilt/ risk factor/ risk premium

32.a: capital budgeting process and distinguish categories of capital projects

• capital budgeting process
  
  1. Idea generation
  2. Analyzing project proposals
  3. Create the firm-wide capital budget
  4. Monitoring decisions and conducting a post-audit
• categories of capital budgeting projects

32.b: describe basic principles of capital budgeting

• key principles
  
  1. Decisions are based on cash flows not accounting income
     
     • sunk cost
     • externalities
     • cannibalization
     • conventional / unconventional cash flow pattern
  2. Cash flows are based on opportunities costs
  3. The timing of cash flows is important.
  4. Cash flows are analyzed on an after-tax basis
  5. Financing costs are reflected in the project's required rate of return.

32.d: calculate NPV, iRR, payback period, discounted payback period, and PI

• NPV
• IRR
  
  • hurdle rate

32.e Explain NPV profile and describe the problems

• NPV profile

• crossover rate

  
  

• relative advantages and disadvantages of NPV and IRR methods

• NPV
  
  • key advantage
  • key disadvantage
• IRR
  
  • key advantage
  • key disadvantage

32.g: Describe relations among NPV, company value, share price

• Depends on

33.b: Describe how taxes affect the cost of capital from different capital sources.

• Weighted average cost of capital (WACC) = marginal cost of capital
  
  • tax deductible
• calcuating a company's WACC
  
  • WACC = (Wd)[(Kd(1-t)]+(Wps)(Kps)+(Wce)(Kce)

33.c: Describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined.

• use industry average capital structure as the target capital structure for a firm under analysis.

33.d: Explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget

• marginal cost of cpaital curve
• investment opportunity schedule
• optimal capital budget

33.e: Explain the marginal cost of capital's role in determining the net present value of a project

• discount rate vs. existing WACC

33.f: Calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach.

1. After-tax cost of debt
   
   • after-tax cost of debt = interest rate - tax savings = Kd - Kd(t) = Kd(1-t)
   • matrix pricing

33.g: Calculate and interpret the cost of noncallable, nonconvertible preferred stock

• cost of preferred stock Kps = Dps(preferred dividends) / P(market price of preferred)

33.h: Calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach.

• cost of equity capital (Kce)
  
  1. capital asset pricing model approach Kce = Rf + B[E(Rmkt)-Rf]
  2. The dividend discount model approach P0 = D1 / Kce -g
  3. Bond yield plus risk premium approach Kce = bond yield + risk premium

33.i: Calculate and interpret the beta and cost of capital for a project

• project's beta
• pure-play method
• the beta of firm is a function = business risk and financial structure.
• B asset = B equity (1/1+[(1-t)*D/E])
• B project = B asset (1+[(1-t)*D/E])
• issues

33.j: Describe uses of country risk premiums in estimating the cost of equity

• country risk premium
• general risk of developing country reflected in sovereign yield spread
• revised CAPM: Kce = Rf +B[E(R MKT) - Rf +CRP]
• CRP = sovereign yield spread * ( annualized standard deviation of equity index of developing country / annualized standard deviation of sovereign bond market in terms of the developed market currency)

33.k: Describe the marginal cost of capital schedule and calculate and interpret its break-points

• marginal cost of capital (MCC)
• marginal cost of capital schedule
• break points = amount of capital at which the component's cost of capital changes / weight of the component in the capital structure

33.l: Explain and demonstrate the correct treatment of flotation cost

• flotation costs usually between 2% and 7%
• Incorrect treatment of flotation costs
• correct treatment of flotation cost

35.a: Describe primary and secondary sources of liquidity and factors that influence a company's liquidity position.

• primary sources of liquidity

• secondary sources of liquidity

  
  

• Factors that influence a company's liquidity position

  
  
  • Drags on liquidity
  • Pulls on liquidity

35.b: Compare a company's liquidity measures with those of peer companies.

• current ration = current assets / current liabilities
• quick ratio = (cash + short-term marketable securities + receivables ) / current liabilities
• receivables turnover = credit sales / average receivables
• number of days of receivables = 365 / receivables turnover = average receivables / average day's credit sales
  
  • need to compare with industry norm
• inventory turnover = cost of good sold / average inventory
• number of days of inventory = 365 / inventory turnover = average inventory / average day's COGS
• payables turnover ratio = purchases / average trade payables
• number of days of payables = 365 / payable turnover ratio = average payables / average day's purchases

35.c: Evaluate working capital effectiveness of a company based on its operating and cash conversion cycles and compare the company's effectiveness with peer companies

• operating cycle = days of inventory + days of receivables
• cash conversion cycle = (average days of receivables) + (average days of inventory) - (average days of payables)

35.d: Describe how different types of cash flows affect a company's net daily cash position

• Daily Cash position
  
  • cash received from subsidiaries; dividends, interest, and principal received from investment in securities; tax refunds; and borrowing
  • cash outflow from payments to employees and vendors; cash transferred to subsidiaries; payments of interest and principal on debt; investment in securities; taxes paid; and dividends paid

35.d: 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

• short-term securities
• Yield calculations for short-term discount securities
  
  • % discount = (face value - price) / face value
  • discount-basis yield = (face value - price)/ face value = % discount * (360/days)
  • money market yield = (face value - price)/ face value] (360 / days)= holding period yield * (360/days)
• bond equivalent yield = (face value - price)/ face value] (365 / days to maturities) = holding period yield * (365/ days)
• Cash Management investment policy
  

35.f: Evaluate a company's management of accounts receivable, inventory, and accounts payable over time and compared to peer companies

• Account Receivable management
  
  • aging schedule > receivables aging
  • weighted average collection period
• Inventory
• Accounts payable management
  
  • Terms of 2/10 net 60 = the invoice is paid within 10 days, the company gets a 2% discount
  • cost of trade credit = [1+(% discount)/(1-%discount)]^ 365/days past discount] - 1
  • number of days of payables = accounts payable / average day's purchases

35.g: Evaluate the choices of short-term funding available to a company and recommend a financing method

• Sources of short-term funding from backs
  
  • Lines of credit
    
    • Uncommitted line of credit
    • Committed line of credit
    • Revolving line of credit
  • Banker's acceptances
  • Factoring
• Non-bank sources of short-term funding
  
  • short-term debt securities = commercial paper

34.a: Define and explain leverage, business risk, sales risk, operating risk, and financial risk and classify a risk.

• Leversage
• Business risk
  
  • sales risk
  • operating risk
• Financial risk

34.b: Calculate and interpret the degree of operating leverage, the degree of financial leverage, and the degree of total leverage.

• degree of operating leverage (DOL)
  = percentage change in EBIT / percentage change in sales
  = Q(P-V) / Q(P-V)-F
  = (S - TVC) / (S-TVC -F)
• degree of financial leverage (DFL)
  = percentage change in EPS / percentage change in EBIT
  = EBIT / (EBIT - interest)
• degree of total leverage (DTL)
  = DOL * DEFL

34.c: Analyze the effect of financial leverage on a company's net income and return on equity

• ROE

34.d: Calculate the breakeven quantity of sales and determine the company's net income at various sales levels.
34.e: Calculate and interpret the operating breakeven quantity of sales

• breakeven quantity of sales
• contribution marting
  
  • Q BE= (fixed operating cost + fixed financing costs) / (price - variable cost per unit)
• operating breakeven quantity of sales
  
  • Q OBE = fixed operating costs / (price - variable cost per unit)i

36.c: Describe the major types of securities, currencies, contracts, commodities, and real assets that trade in organized markets, including their distinguishing characteristics and major subtypes.

36.d: Describe types of financial intermediaries and services that they provide

36.e: Compare positions an investor can take in an asset.

36.f: Calculate and interpret the leverage ration, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call

36.g Compare execution, validity, and clearing instructions

36.k: Describe characteristics of a well-functioning financial system

37.b Calculate and interpret the value, price return, and total return of an index

37.c Describe the choices and issues in index construction and management

37.d: Compare the different weighting methods used in index construction

37.e: Calculate and analyze the value and return of an index given its weighting method

37.j: Describe indexes representing alternative investments

38.a: Describe market efficiency and related concepts, including their importance to investment practitioners.

38.b: Distinguish between market value and intrinsic value

38.d: Contrast weak-form, semi-strong-form, and strong form market efficiency

38.e: Explain the implications of each form of market efficiency for fundamental analysis, technical analysis, and the choice between active and passive portfolio management

38.g: Describe behavioral finance and its potential relevance to understanding market anomalies

39.a: Describe characteristics of types of equity securities

39.b Describe differences in voting rights and other ownership characteristics among different equity classes

39.c: Distinguish between public and private equity securities

39.d: Describe methods for investing in non-domestic equity securities

39.e: Compare the risk and return characteristics of different types of equity securities.

39.f: Explain the role of equity securities in the financing of a company's assets

39.g: Distinguish between the market value and book value of equity securities.

39.h: Compare a company's cost of equity, its (accounting) return on equity, and investors' required rates of return.

40.a: Explain uses of industry analysis and the relation of industry analysis to company analysis

40.b: Compare methods by which companies can be grouped, current industry classification systems, and classify a company, given a description of its activities and the classification system.

40.g: Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition

40.c: Explain the factors that affect the sensitivity of a company to the business cycle and the uses and limitations of industry and company descriptors such as growth, defensive, and cyclical.

40.d: Explain how a company's industry classification can be used to identify a potential peer group for equity valuation

40.e: Describe the elements that need to be covered in a thorough industry analysis

40.f: Describe the principles of strategic analysis of an industry

40.h: Describe industry life cycle models, classify an industry as to life cycle stage, and describe limitations of the life-cycle concept in forecasting industry performance

40.i: Compare characteristics of representative industries from the various economic sectors

40.j: Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk

40.k: Describe the elements that should be covered in a thorough company analysis

41.a: Evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market

41.b: Describe major categories of equity valuation models

41.c: Describe regular cash dividends, extra dividends, stock dividends, stock splits, reverse stock splits, and share repurchases

41.e: Explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models

41.f: Calculate the intrinsic value of a non-callable, non-convertible preferred stock

41.g: Calculate and interpret the intrinsic value of an equity security based on the Fordon(constant) growth dividend discount model or a two-stage dividend discount model, as appropriate

41.h: Identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate

41.i: Explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables

41.j: Calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value

41.k: Describe enterprise value multiples and their use in estimating equity value

41.l: Describe asset-based valuation models and their use in estimating equity value

41.m: Explain advantages and disadvantages of each category of valuation model