CIFA Intermediate Level
Corporate Finance cheat sheet
Every chapter's key points, formulas and definitions on one page, for the last week before the exam. Each heading links to the chapter that explains it.
Overview of corporate finance
- Corporate finance covers three interlinked decision areas: the capital structure decision (how to finance the firm), the capital investment decision (what to invest in), and the working capital and payout decisions.
- The finance manager has five functions: investment, financing, working capital management, dividend decisions and risk management. Each later chapter is a deep dive into one of them.
- The operative goal is shareholder wealth maximisation, maximising the market value of equity, rather than profit maximisation, because only wealth properly accounts for the timing and risk of cash flows.
- The shareholder-manager agency conflict recurs across the paper: managers may resist an optimal capital structure, overinvest in low-return projects, hoard excess cash or resist a value-creating acquisition.
- Linking pay to share price or economic value added performance is the standard resolution, aligning what management is rewarded for with what creates shareholder wealth.
Key terms
- Performance measurement
- Return-based measures (ROA, ROE, ROIC; covered in CIFA Financial Statements Analysis, under profitability analysis), residual income and EVA (covered in CIFA Equity Investments Analysis, under residual income valuation), and total shareholder return, each assessing managerial performance from a different angle.
- Compensation and incentives
- Linking pay to share price or economic value added performance (as in CIFA Introduction to Finance and Investment) is the standard resolution to the agency problem above, aligning what management is rewarded for with what actually creates shareholder wealth.
The rest of the sheet covers
- Capital structure
- Cost of capital
- Capital investment decisions
- Management of working capital
- Dividend policy
- Mergers and acquisitions
- Corporate growth and restructuring
- Islamic finance
- Green and environmental finance
- Corporate risk management
- Worked examples
- Exam technique and revision
- Glossary