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CMA Part 2 Cheat Sheet

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Financial Statement Analysis

  • 20% of exam
  • Liquidity Ratios Leverage Ratios Activity Ratios Profitability DuPont Earnings Quality

Corporate Finance

  • 20% of exam
  • Cost of Capital Capital Structure Working Capital Leverage Dividend Policy FX Exposure

Decision Analysis

  • 25% of exam
  • CVP Relevant Costs Pricing Make-or-Buy Constraints Expected Value

Risk Management

  • 10% of exam
  • ERM / COSO Risk Responses Hedging Derivatives

Investment Decisions

  • 10% of exam
  • NPV IRR Payback Profitability Index Real Options

Professional Ethics

  • 15% of exam
  • IMA 4 Standards Conflict Resolution Ethics Helpline Code of Conduct

Quick Facts

  • Exam CMA Part 2
  • Credential IMA CMA
  • Format 100 MCQ + 2 CBQ sets
  • Time 4 hr (3hr MCQ, 1hr CBQs)
  • Pass 360/500 scaled
  • CBQ gate 50% MCQ points to reach CBQs
  • Windows Jan-Feb, May-Jun, Sep-Oct
  • Provider Prometric (ICMA)

DuPont 3-Step FS

  • Margin x Turnover x Leverage = ROE
  • Margin: NI/Sales Turnover: Sales/Assets Leverage: Assets/Equity

Current vs Quick Ratio FS

Current

  • Includes inventory
  • CA / CL
  • Broad liquidity

Quick

  • Excludes inventory
  • Stricter test
  • Acid-test
  • Quick removes least liquid

Liquidity Ratios FS

  • Current ratio CA / CL
  • Quick ratio (CA - inventory - prepaid) / CL
  • Cash ratio (Cash + securities) / CL
  • Net working capital CA - CL
  • Higher = safer More liquid cushion

Qualified vs Adverse Opinion FS

Qualified

  • Except for issue
  • Otherwise fair
  • Limited misstatement

Adverse

  • Not fairly stated
  • Pervasive misstatement
  • Worst opinion
  • Adverse = statements unreliable

Leverage Ratios FS

  • Debt-to-equity Total debt / equity
  • Debt-to-assets Total debt / total assets
  • TIE EBIT / interest expense
  • Low TIE Default risk (<1.5x)
  • Solvency Long-term obligation safety

Activity Ratios FS

  • Inventory turnover COGS / avg inventory
  • Days inventory 365 / inv turnover
  • AR turnover Net credit sales / avg AR
  • DSO 365 / AR turnover
  • CCC DSO + DIO - DPO
  • Shorter CCC Less cash tied up

Profitability FS

  • Gross margin Gross profit / sales
  • Operating margin EBIT / sales
  • Net margin Net income / sales
  • ROA Net income / total assets
  • ROE Net income / equity
  • P/E ratio Price / EPS

DuPont + Quality FS

  • DuPont ROE Margin x turnover x leverage
  • Net margin Net income / sales
  • Asset turnover Sales / total assets
  • Equity multiplier Assets / equity
  • Earnings quality Cash-backed, repeatable income
  • Common-size Percent of sales/assets

Leverage Chain CO

  • DOL x DFL = DTL
  • DOL: operating risk DFL: financial risk DTL: total risk

Operating vs Financial Leverage CO

Operating (DOL)

  • Fixed operating costs
  • CM / EBIT
  • Business risk

Financial (DFL)

  • Fixed interest costs
  • EBIT / (EBIT-int)
  • Financial risk
  • DOL x DFL = DTL

Cost of Capital CO

  • WACC Blended equity, after-tax debt cost
  • CAPM Rf + Beta(Rm - Rf)
  • After-tax debt Rd x (1 - tax rate)
  • Market risk premium Rm - Rf
  • Beta Systematic risk only
  • Hurdle rate Blended required return

WACC Tax Shield CO

  • Debt costs Rd x (1 - tax)
  • Interest: deductible Equity: no shield Lowers WACC to a point

Debt vs Equity Financing CO

Debt

  • Tax-deductible interest
  • Cheapest source
  • Adds financial risk

Equity

  • No fixed payment
  • Dilutes ownership
  • Higher cost
  • Tax shield favors debt

Capital Structure CO

  • Optimal structure Mix minimizing WACC
  • Tax shield Deductible interest
  • MM Prop I No-tax: structure irrelevant
  • MM with taxes Value rises with debt
  • Trade-off theory Shield vs distress cost
  • Distress cost Raises Rd and Re

Working Capital CO

  • EOQ Minimizes total inventory cost
  • D / S / H Demand / order / holding
  • Forgo discount ~37% on 2/10 net 30
  • Float Delay in cash movement
  • Aggressive policy Less WC, higher risk
  • Conservative policy More WC, lower risk

Leverage + Dividends CO

  • DOL CM / EBIT
  • DFL EBIT / (EBIT - interest)
  • DTL DOL x DFL
  • Residual dividend Pay after positive-NPV projects
  • Stable dividend Smoothed predictable payout
  • Stock split More shares, same value

Relevant vs Sunk Cost DE

Relevant

  • Future cost
  • Differs by choice
  • Affects decision

Sunk

  • Already incurred
  • Cannot change
  • Always ignore
  • Only relevant costs matter

Relevant Cost: Include or Ignore? DE

  • Already incurred → Ignore ( Sunk cost )
  • Forgone benefit → Include ( Opportunity cost )
  • Differs by choice → Include ( Relevant )
  • Same either way → Ignore ( Irrelevant )
  • Avoidable fixed cost → Include ( Stops if dropped )
  • Allocated common fixed → Ignore ( Unavoidable )
  • Joint cost pre-split → Ignore ( Sunk )
  • Idle capacity order → Ignore fixed ( Use incremental )

CVP Analysis DE

  • CM per unit Price - variable cost
  • CM ratio CM / selling price
  • Break-even units Fixed costs / CM unit
  • Break-even dollars Fixed costs / CM ratio
  • Target units (FC + profit) / CM unit
  • Margin of safety Sales - break-even sales

Relevant Costs DE

  • Relevant cost Future, differs by choice
  • Sunk cost Incurred, always irrelevant
  • Opportunity cost Forgone next-best benefit
  • Make-or-buy Avoidable cost vs price
  • Special order Price > incremental cost
  • Keep-or-drop Drop if segment margin negative

Pricing + Constraints DE

  • Cost-plus Markup on cost
  • Target costing Price - profit = cost
  • Price elasticity %Qty / %Price
  • Elastic (>1) Price up, revenue down
  • Constraint rule CM per scarce unit
  • Expected value Sum(probability x payoff)

Risk Management RI

  • ERM Firm-wide risk process
  • COSO ERM Risk linked to strategy
  • Risk appetite Acceptable risk level
  • Avoid / reduce Exit or mitigate
  • Share / accept Transfer or retain
  • Forwards/futures Lock in price
  • Options Right, not obligation
  • Swaps Exchange cash flows

NPV vs IRR IN

NPV

  • Dollar value added
  • WACC reinvestment
  • Use when conflict

IRR

  • Percent return
  • Reinvest-at-IRR flaw
  • Multiple rates possible
  • Mutually exclusive = NPV

Which Capital Budgeting Method? IN

  • Measure value added → NPV ( Dollars )
  • Mutually exclusive → NPV ( Ignore IRR conflict )
  • Rank under rationing → Profitability Index ( Value per dollar )
  • Need % return → IRR ( vs hurdle rate )
  • Liquidity / risk screen → Payback ( Years to recover )
  • Time value matters → Discounted payback ( PV inflows )
  • Flexibility / uncertainty → Real options ( Adds to NPV )
  • NPV vs IRR conflict → NPV ( Realistic reinvestment )

Capital Budgeting IN

  • NPV PV inflows - investment
  • NPV rule Accept if NPV > 0
  • IRR Rate where NPV = 0
  • IRR rule Accept if IRR > hurdle
  • Payback Years to recover cost
  • PI PV inflows / investment
  • Real options Expand, abandon, defer

IMA Ethics Standards ET

  • C-C-I-C: Competence Confidentiality Integrity Credibility
  • Competence: skill Confidentiality: secrecy Integrity: no conflicts Credibility: fair disclosure

IMA Ethics ET

  • Competence Skill, current knowledge
  • Confidentiality No improper disclosure
  • Integrity Avoid conflicts of interest
  • Credibility Fair, full disclosure
  • Conflict step 1 Follow firm policy
  • Escalate Higher management levels
  • Ethics Helpline IMA confidential advice

Common Traps

NPV vs IRR

  • NPV = dollar value added ≠ IRR = % return, reinvest flaw

Sunk vs relevant

  • Sunk costs always ignored ≠ Only future differences count

Current vs quick

  • Current includes inventory ≠ Quick excludes inventory

ROA vs ROE

  • ROA ignores financing ≠ ROE rises with profitable debt

Cost-plus vs target

  • Cost-plus ignores demand ≠ Target starts at market price

Joint cost trap

  • Pre-split costs are sunk ≠ Process if revenue > added cost

Payback weakness

  • Payback ignores time value ≠ Ignores post-payback flows

Last Minute

  • 1. FSA 20, CorpFin 20, Decision 25
  • 2. Risk 10, Investment 10, Ethics 15
  • 3. Need 360 of 500 to pass
  • 4. Hit 50% MCQ to reach CBQs
  • 5. WACC blends equity and after-tax debt
  • 6. CAPM is riskfree plus beta premium
  • 7. EOQ minimizes total inventory cost
  • 8. Mutually exclusive projects use NPV
  • 9. Sunk costs irrelevant; opportunity costs relevant
  • 10. DuPont: margin x turnover x leverage
  • 11. Ethics: Competence Confidentiality Integrity Credibility
  • 12. Ethics conflict: follow policy, then escalate

CMA Part 2

  • Practice Questions 200 questions Study Guide 30 topics Cheat Sheet 92 facts Flashcards 50 cards Games 20 terms Videos 1 video Blogs 1 blog Podcast
  • Word games 20 terms Guess the Term T E R M S Read the clue and guess the term in 6 tries. Word games 20 terms Term Match Swap tiles to line up three of the same term. Word games 20 terms Term Pairs ? ✓ ✓ ? ? Flip two cards at a time to find matching terms. Word games 20 terms Term Search Q T E R M X Find five hidden terms in a grid of letters.