The CFA corporate finance section is a relatively easy topic area for most candidates.
CF represents 7% in Level 1 and 5-15% in level 2. In most of the recent years, there are 2 vignettes meaning 10% of the exam. There is no coverage in Level 3.
Why CFA Corporate Finance seems to be Easier
This is my own finding after interaction with readers and friends who passed the CFA exam.
1. Most Find Corporate Finance Interesting
Corporate finance covers capital budgeting, leveraging, rate of return and working capital management.
The tools are often used in real business situations and therefore the reading is more tangible than some other topics. Also, quite a few candidates aspire to work in corporate finance and this makes interesting read for them.
2.The Concepts are Covered in Quant and Equities
Not only that the topics are easier to understand, it also has quite a bit overlap with other topic areas. This is helpful to learn a concept in different perspective, and students get a good sense of achievement after mastering these concepts.
3. Low Hanging Fruits
The questions themselves are also more straightforward. For example, you can easily get 100% accuracy in NPV type of questions (and better yet, it’s a heavily tested topic).
If you work on enough practice questions, you pretty much know how the questions are structured in the real exam.
Corp Fin Level 1 Study Sessions
Corporate Finance has one big study session (SS 11) divided into 6 shorter readings on:
- Capital budgeting process such as NPV and IRR
- Cost of capital from external and internal perspective
- Measures of business risks related to financial leverage
- Dividends and share purchases
- Management of corporate working capital
- Corporate governance, especially on conflict of interested between external owners and corporate insiders
The first two readings are more important. Historically, most questions were picked from these topics.
Capital budget correlates strongly with Quantitative Methods: concepts such as NPV, IRR and paypack period apply to both topic areas.
Cost of capital in Level 1 deals with cost of debt, cost of equity and cost of preferred equity. This is also covered in the equities section. This is a core concept in finance that you should know inside out.
For Your Further Reading
Here are more tips on these topic areas: