CFA Notes Level 1

As the world of finance grows in complexity, the Chartered Financial Analyst (CFA) designation has increasingly become a gold standard for finance professionals seeking to demonstrate their expertise and commitment to the field.

The CFA Level 1 exam is the first of three milestones in this rigorous journey, covering a breadth of knowledge across numerous topics crucial to finance and investment management.

With the aim of supporting prospective candidates in their preparation for this exam, the CFA level 1 notes contained in this article provide a succinct overview of the ten exam topics in a format that is comprehensive and easy to navigate.

CFA Level 1 Summary

The CFA Level 1 exam consists of ten key topics that will gauge your understanding of the foundational investment concepts necessary to begin your journey in this profession.

To help guide your preparation efforts for this exam, we’ve broken down all the topics it includes, their corresponding session, and how much weight each carries in the table below.

Topic	Session	Exam Weight
Ethical and Professional Standards	1	15-20%
Quantitative Methods	1	8-12%
Economics	1	8-12%
Financial Statement Analysis	1	13-17%
Corporate Issuers	2	8-12%
Portfolio Management	2	5-8%
Equity Investments	2	10-12%
Fixed Income	2	10-12%
Derivatives	2	5-8%
Alternative Investments	2	5-8%

To gain the deep understanding of these topics needed to succeed in the CFA Level 1 exam, it’s essential to take advantage of quality study materials that align with the exam’s focus and depth.

CFA Level 1 Study Material

Understanding the CFA level 1 exam can be quite daunting without a clear study roadmap. Our comprehensive guide will provide you with structured notes and a thorough overview of these ten topics to help you ace the exam.

Session 1

Ethical and Professional Standards

The ethical and professional standards section serves as the moral compass of the CFA curriculum, delving deep into the role of ethics in the investment profession and the challenges of maintaining ethical behavior in various contexts.

Within this topic there are several key frameworks that all investment professionals need to understand:

• The CFA Institute’s Code of Ethics and Standards of Professional Conduct
• The seven Standards of Professional Conduct
• The Global Investment Performance Standards (GIPS)

These outline the ethical practices and guidelines used to ensure fairness and transparency in this profession.

Quantitative Methods

Quantitative methods such as time-series analysis and linear regression form the backbone of data analysis, providing you with the tools to be able to effectively organize, visualize, and utilize financial data.

Some essential concepts to be aware of for your CFA Level 1 exam include:

• Probability theory: The branch of mathematics that studies the likelihood of the occurrence of random events in order to predict the outcomes of various experiments. In financial markets, this is used to model uncertain outcomes and measure risks
• Time-series analysis: A technique used for forecasting stock prices, analyzing financial markets, and evaluating financial performance by measuring a series of data points collected at constant time intervals
• Time Value of Money: The foundational financial concept that money available now is worth more than the same amount in the future due to its potential earning capacity. This concept is used to compare investment options and to solve problems involving loans, annuities, and leases

While these quantitative methods are often challenging among candidates, using the right study resources can greatly simplify these complex concepts and allow you grasp them quickly, thereby elevating your confidence as the exam approaches.

Economics

The Economics section of the CFA Level 1 curriculum will require a comprehensive understanding of both micro and macroeconomic principles.

Some key microeconomic concepts to be aware of include:

• Supply and demand
• Firm production
• Different market structures

Conversely, you’ll also need to be aware of broader macroeconomic concepts such as:

• The economic cycle
• Monetary and fiscal policy
• Currency exchange rates

The economics section concludes with an understanding of international trade, geopolitics, and capital flows.

Financial Statement Analysis

This section is crucial for understanding how to evaluate the financial health of a corporation. In order to be ready for the exam, you should be comfortable with the following concepts:

• Inventory analysis
• Long-term asset analysis
• The quality of financial reports
• Income taxes

Understanding these notions is essential to be able to analyze and interpret financial statements (e.g., income statements and balance statements) for decision-making purposes.

Session 2

Corporate Issuers

This section will take a deep-dive into corporate structures, governance, and risks. You will learn about different corporate structures (i.e., sole proprietorships, partnerships, and corporations) as well as their associated benefits and risks.

Make sure to focus on the following topics in particular:

• The capital allocation process: How companies prioritize and allocate their financial resources directly impacts their value, strategic goals and risk tolerance, and the three main financial analysis documents (balance sheets, income statements, and cash flow statements)
• Working capital and liquidity: These two concepts provide crucial insights into a company’s short-term financial health and efficiency of operations. Understanding the strategies companies use to manage these two components is vital for exam success
• Pitfalls in capital budgeting: Understanding these allows financial professionals to avoid mistakes when evaluating potential investment decisions. Pitfalls might include an overestimation of cash inflows, underestimation of costs, overlooking the time value of money, or failing to properly account for risk or uncertainty

In addition to these, it’s also key that you grasp the concepts of real options, the different sources of funds, and how to manage and measure liquidity.

Portfolio Management

This section focuses on teaching you the essentials of portfolio management through an exploration of the following topics:

• Portfolio diversification theory
• The asset management theory
• Behavioral biases
• Risk management

Make sure to also cover the principles of technical analysis and the huge impact Big Data, AI, and blockchain have had on managing investments.

Equity Investments

Developing a critical understanding of equity investments first requires you to master the theories and principles that dictate the financial markets.

With this in mind, it’s pivotal to study the following principles and concepts:

• Equity valuation
• The efficient market hypothesis
• Security market indices
• The significance of market regulation

You should also understand equity securities’ risk and return characteristics and delve into equity valuation models like present value models, multiplier models, and asset-based valuation models.

Fixed Income

This topic covers the valuation techniques, markets, and tools central to the world of investing. Succeeding in the exam demands a thorough understanding of the following areas: 

• Fixed income securities: Understanding features such as maturity, coupon rate, and issuer type provides the foundation for a deeper analysis of the risk/return trade-off of investing in fixed income securities, which guides many investment strategies
• Yield measures: These allow investors to compare different fixed income securities and make informed decisions about which are most suitable for their investment objectives. Common measures include current yield, yield to maturity, yield to call, and yield to worst
• Credit analysis basics: Knowledge of the factors that go into evaluating an issuer’s creditworthiness and assessing the likelihood of default is vital for a candidate to be able to assess the risk associated with a particular fixed income security

The exam will also require you to be familiar with the structure of fixed income markets, various risks associated with fixed income investments, and an in-depth study of credit default swaps.

Derivatives

The Derivatives section of the CFA curriculum provides an introduction to derivative markets, instruments, and their role in investment management. For this topic, you must possess an understanding of the following fundamentals:

• Forward and futures contracts
• Options, swaps, and credit derivatives
• Instruments of forward commitment and contingent claims

This section also covers the valuation of forwards and futures, the use of derivatives for hedging, and risk management with derivatives.

Alternative Investments

The section of the curriculum provides a broad overview of the different types of alternative investments, their unique features, and why they might be a good addition to your portfolio.

Hedge funds, private equity and debt, commodity investments, real estate, and infrastructure are key examples you should be familiar with, as well as the main ways to invest in these and how to appraise performance.