CIMA F3 cheat sheet

Stakeholder mapping: Mendelow matrix classifies stakeholders by power and interest; high power/high interest require active engagement (key players), low power/low interest require minimal effort.

Agency problem: separation of ownership and control leads to managers pursuing own goals; agency costs include monitoring, bonding, and residual loss; solutions include performance-related pay, share options, and threat of takeover.

Shareholder value analysis (SVA): value = present value of future free cash flows; shareholder value added = value of operations minus debt minus equity capital invested; SVA = (ROIC − WACC) × invested capital.

Balanced scorecard: four perspectives (financial, customer, internal processes, learning & growth); each with objectives, measures, targets, initiatives; links strategy to performance measurement.

Porter's five forces: rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers; used to assess industry attractiveness and competitive strategy.

Ansoff matrix: market penetration (existing products/markets), product development (new products/existing markets), market development (existing products/new markets), diversification (new products/new markets).

BCG matrix: stars (high growth/high share), cash cows (low growth/high share), question marks (high growth/low share), dogs (low growth/low share); guides resource allocation.

Sustainable growth rate: g = ROE × (1 − dividend payout ratio); maximum growth without external equity, assuming constant debt/equity ratio and asset turnover.

Financial strategy formulation: align financial objectives (profitability, liquidity, risk, growth) with corporate strategy; use NPV, WACC, and risk analysis to evaluate strategic options.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − T), where V = E + D; use market values for weights; Ke from CAPM: Ke = Rf + β × (Rm − Rf).

Modigliani–Miller (no tax): firm value independent of capital structure; WACC constant; with tax: value increases by Tc × D (present value of tax shield); WACC decreases with debt.

Trade-off theory: optimal capital structure balances tax shield benefits against financial distress costs; debt increases value until marginal distress costs exceed tax benefits.

Pecking order theory: firms prefer internal funds first, then debt, then external equity; asymmetric information drives preference for least information-sensitive sources.

Dividend policy: residual theory pays dividends only from earnings not needed for positive-NPV investments; clientele effect, signalling, and agency considerations also influence payout.

Rights issue: existing shareholders offered new shares at discount to market; theoretical ex-rights price (TERP) = (market value of existing shares + proceeds) / total shares after issue.

Convertible bonds: lower coupon than straight debt; conversion ratio, conversion price, conversion premium; dilutes equity if converted; value = straight bond value + conversion option value.

Lease vs buy: compare present value of lease payments (after tax) with cost of buying less PV of tax depreciation and residual value; consider tax and cash flow timing.

NPV = Σ [CFt / (1 + r)^t] − initial investment; accept if NPV > 0; IRR is discount rate making NPV = 0; accept if IRR > cost of capital; conflicts possible with mutually exclusive projects due to scale or timing.

Payback period: time to recover initial investment; ignores time value and cash flows after payback; discounted payback uses discounted cash flows.

Accounting rate of return (ARR) = average annual accounting profit / average investment; uses profits not cash flows; ignores time value.

Sensitivity analysis: % change in a variable to make NPV zero = (NPV / PV of variable) × 100; identifies critical variables; does not incorporate probability.

Scenario analysis: evaluates NPV under multiple combinations of variables; provides range of outcomes; probability distributions can be assigned for expected value.

Risk-adjusted discount rate: add risk premium to WACC for higher-risk projects; or use certainty equivalents (CE = expected cash flow × certainty equivalent coefficient, discounted at risk-free rate).

Portfolio theory: diversifiable (unsystematic) risk can be eliminated; non-diversifiable (systematic) risk measured by beta; CAPM: E(R) = Rf + β(Rm − Rf).

Real options: option to expand, abandon, delay, or switch; value = NPV without option + value of flexibility; use decision trees or option pricing models (Black-Scholes, binomial).

Free cash flow to firm (FCFF) = EBIT × (1 − T) + depreciation − capital expenditure − increase in working capital; enterprise value = PV of FCFF at WACC; equity value = EV − debt + cash.

Free cash flow to equity (FCFE) = net income + depreciation − capex − Δ working capital + net borrowing; equity value = PV of FCFE at cost of equity.

Dividend valuation model: P0 = D1 / (Ke − g) for constant growth; g = retention ratio × return on equity (ROE); multistage models for changing growth.

P/E ratio valuation: value = EPS × industry P/E; earnings yield = 1 / P/E; use forward or trailing P/E; adjust for growth and risk differences.

Asset-based valuation: net asset value (NAV) = total assets − liabilities at market values; includes tangible assets; may ignore intangible value and going concern.

Merger synergies: value of combined firm = VA + VB + synergy; synergy sources include economies of scale, revenue enhancement, tax benefits, and improved management.

M&A financing: cash offer, share exchange (ratio = offer price / acquirer share price), or debt; impact on EPS and ownership dilution; accretion/dilution analysis.

Defensive tactics: poison pills (shareholder rights plans), staggered boards, golden parachutes, white knights, pac-man defence; evaluate impact on shareholder value.

Restructuring: divestment (sell non-core assets), spin-off (separate legal entity), carve-out (IPO of subsidiary), management buyout (MBO); motives include focus, debt reduction, and unlocking value.