Wiley CMA Exam Review 2023 Study Guide Part 2: Strategic Financial Management (Paperback)

About the Instructors ix

About the Exam xi

Introduction xv

Section A: Financial Statement Analysis 1

Topic 1. Basic Financial Statement Analysis 2

Common-Size Financial Statement Analysis (Vertical Analysis) 2

Horizontal Financial Statement Analysis 9

Topic 2. Financial Ratios 13

Liquidity Ratios 13

Solvency Ratios 17

Operating Leverage and Financial Leverage 21

Efficiency Ratios 25

Efficiency Ratios—Use of Assets 29

Topic 3. Profitability Analysis 31

Profitability—Vertical Analysis Revisited and Return Ratios 31

Profitability—Market Value Ratios 33

Profitability—EPS, Yields, and Shareholder Return 35

Limitations of Ratio Analysis 41

Sources of Financial Information and Their Use in Evaluating a Company’s Financial Strength 43

ROA and ROE—A Closer Look 47

Revenues and Its Relationship to Current Assets 51

Cost of Sales and the Different Profit Margins 53

Considerations when Measuring Income 55

Topic 4. Special Issues 57

Sales and Revenues—Important Considerations 57

Foreign Exchange Fluctuations 59

Inflation and the Financial Ratios 63

Changes in Accounting Treatment 65

Book vs. Market Value and Accounting vs. Economic Profit 69

Quality of Earnings 71

Section A Review Questions 73

Section B: Corporate Finance 77

Topic 1. Risk and Return 78

Calculating Return 78

Types of Risk 81

Capital Asset Pricing Model 83

Topic 2. Long-Term Financial Management 85

Term Structure of Interest Rates 85

Types of Financial Instruments: Bonds 87

Types of Financial Instruments: Stock 91

Other Financial Instruments 93

Taxes and Capital Structure 99

Cost of Capital 101

Valuation of Financial Instruments: Valuing Debt and Equity 105

Valuation of Financial Instruments: Valuing Options 109

Topic 3. Raising Capital 111

Financial Markets and Regulation 111

Market Efficiency 113

Financial Institutions 115

Initial and Secondary Public Offerings 117

Dividend Policy and Share Repurchases 119

Topic 4. Working Capital Management 121

Working Capital Terminology 121

Cash Management 123

Marketable Securities Management 127

Accounts Receivable Management 131

Inventory Management 133

Types of Short-Term Credit 137

Short-Term Credit Management 139

Topic 5. Corporate Restructuring 143

Mergers and Acquisitions 143

Restructuring and Combining 145

Evaluating Business Combinations 147

Topic 6. International Finance 149

Fixed, Flexible, and Floating Exchange Rates 149

Managing Transaction Exposure 151

Financing International Trade 153

Section B Review Questions 155

Section C: Decision Analysis 159

Topic 1. CVP Analysis 160

Cost Behavior 160

Contribution Margin 163

Targeted Profit and Taxes 169

Multiple Products C-V-P 173

Risk and Uncertainty 177

Topic 2. Marginal Analysis 181

Defining Relevant Costs 181

Sunk Costs, Opportunity Costs, and Capacity 183

Marginal Analysis and Product Line Decisions 187

Practice Problems 193

Comprehensive Problems with Opportunity Costs 195

Topic 3. Pricing 197

Pricing Methods 197

Cost-Based Pricing 199

Competition-Based Pricing 203

Customer-Based Pricing 211

Pricing Strategy and the Product Life Cycle 215

Section C Review Questions 219

Section D: Risk Management 223

Enterprise Risk 224

Types of Enterprise Risk 224

Risk Identification and Assessment: Enterprise Risk Management 227

Risk Identification and Assessment: Risk Assessment Tools 231

Use of Probabilities 233

Risk Mitigation Strategies 235

Managing Risk 237

Section D Review Questions 239

Section E: Investment Decisions 243

Topic 1. Capital Budgeting Process 244

Introducing the Capital Budgeting Process 244

Cash Flows and Profits in the Capital Budgeting Process 249

Topic 2. Capital Investment Analysis Methods 253

NPV and IRR Computations 253

Comparing NPV and IRR Methods with Uneven Cash Flows 259

The Payback Method 265

Risk Analysis and Qualitative Issues in Capital Budgeting 271

Section E Review Questions 277

Section F: Professional Ethics 281

Topic 1. Business Ethics 282

Moral Philosophies and Ethical Decision Making 282

Topic 2. Ethical Considerations for Management Accounting, Financial Management Professionals 287

Principles and Standards of Professional Ethics 287

Controlling Fraud and Resolving Ethical Issues 293

Topic 3. Ethical Considerations for the Organization 297

Ethics in an International Environment 297

Ethics and the Organization 303

Ethics and HR Management 307

Section F Review Questions 313

Review Questions and Answers 317

Appendixes 353

ICMA Content Specification Outlines 353

ICMA Learning Outcome Statements 361

Time-Value of Money Tables 375

Essay Tips 381

CMA Exam Ratio Definitions 383

Index 387