Corporate Finance: CFA® Level II

It is 5–10% of the 2027 Level II exam. 31 learning outcomes across 4 learning modules.

64 practice questions and 0 formula cards on this topic in the app.

Analysis of Dividends and Share Repurchases

• Explain the expected impact on shareholder wealth and on a company's financial ratios of cash dividends (regular, extra or liquidating), stock dividends, reverse stock splits and stock splits
• Contrast the main dividend policy theories and, for a described dividend decision by a company, explain what each theory implies for its share value
• Explain what signals a company may send by starting, raising, cutting or omitting its dividend
• Set out the ways agency costs can influence a firm's payout policy
• Set out what shapes the dividend policies companies actually adopt
• Work out and explain the effective tax rate borne by each currency unit a company earns, under double-taxation, imputation and split-rate tax regimes
• Contrast a stable dividend policy with a constant payout ratio policy and work out the dividend each would produce
• Outline how corporate payout policies have broadly changed over time
• Contrast the ways a firm can buy back shares
• Work out and contrast how a share buyback affects EPS when it is funded 1) from surplus cash and 2) with borrowed money
• Work out how buying back shares changes book value per share
• Weigh up returning cash through dividends against buying back shares
• Work out and explain how well dividends are covered, measured against free cash flow and against net income
• Recognise the traits of firms whose cash dividend may prove unsustainable

Environmental, Social, and Governance (ESG) Considerations in Investment Analysis

• Explain how ownership structures differ around the world and how those differences may shape corporate governance policies and practices
• Judge how well a company's governance policies and practices work
• Explain the ways ESG risks and ESG-driven investment opportunities can be found and assessed
• Assess a company's exposure to ESG risks and the investment opportunities ESG creates for it

Cost of Capital: Advanced Topics

• Set out the top-down and bottom-up influences on a firm's cost of capital
• Contrast the approaches for estimating what debt costs a firm
• Set out how an equity risk premium can be estimated from past data or from forward-looking inputs
• Contrast the approaches for estimating equity investors' required return
• Work out the cost of debt or equity investors' required return for both a listed and a privately held company
• Benchmark a company's cost of capital and capital structure against those of its peers

Corporate Restructuring

• Set out the kinds of corporate restructuring and why issuers undertake them
• Explain how a proposed corporate restructuring is first assessed
• Apply valuation methods to companies undergoing corporate restructuring and explain the values that result
• Show the impact of a corporate restructuring on an issuer's EPS, its weighted average cost of capital and its ratio of net debt to EBITDA
• Assess a company's investment moves such as acquisitions, joint ventures and equity stakes in other firms
• Assess how a company divests, whether through a sale or a spin off
• Assess restructurings aimed at costs or at the balance sheet