The CMA Part 2: Financial Decision Making is the final stage in the two part CMA exams. This part tests the candidates on their knowledge in the areas of financial analysis and decision making.
The CMA course outline:
In the CMA part 2 exam, there are six sections, all of which require very detailed study. The sections, along with the weights assigned to each are:
- Financial Statement analysis – 25%
- Corporate Finance – 20%
- Decision Analysis – 20%
- Risk Management – 10%
- Investment Decisions – 15% and
- Professional Ethics – 10%.
Financial statement analysis (25%)
The largest section of the CMA part 2 exam is financial statement analysis covering 25% of the CMA part 2 exam. The topics covered in this part are:
- Financial Ratios and their calculation
- Performance evaluation of entities using multiple ratios
- Market value vs book value
- Profitability analysis
- Off-balance sheet financing
- Effects of changing prices and inflation
- Earnings quality
The basics of financial accounting, which you learnt in Section A of Part 1 had provided you with the basic knowledge about accounting. This paper builds further on those concepts. The focus of this part is on ratios, and how to evaluate and distinguish companies based on analysis of the ratios. The big difference is that this paper is more forward looking, and instead of evaluating past performance, it tries to predict the future performance of a company.
Needless to say, in order to successfully tackle the questions in this section, you will need to learn the formulae of the ratios by heart, understand what they pertain to and then use them practically for solving the problems. If you practice the key ratios well, you can score good marks in this paper.
Corporate Finance (20%)
This is another very important topic in the CMA part 2 exam. It focuses on the ways and means for companies to raise finance.
To successfully clear this section, you need to gain a good knowledge about some important concepts like risk and return, cost of capital, instruments used for financing, types of public offering (initial and follow on/secondary), dividend policy, raising capital, mergers and acquisitions, working capital Management and International Finance.
It is highly important for you to develop a deep understanding of the various financing options, and the risks and returns pertaining to each of them You should also be able to evaluate short term and the long term financial arrangements that companies can enter into and the advantages and disadvantages of each of them.
In the exams, both conceptual, as well as computational questions, will be asked. Be prepared for answering those.
Decision Analysis (20%)
In the decision analysis section, the focus is on building the abilities of the candidates with regard to evaluating alternative options to arrive at the correct decision. The techniques like make or buy decisions, cost volume profit analysis, marginal analysis, and pricing methodologies are covered. The knowledge of the candidate on how management accounts provide data and help in performance analysis is also tested.
Risk Management (10%)
The risk management section covers the following topics –
- Types of risk that includes business
- Financial, operational and legal risks
- Risk management
- Risk mitigation
- Risk analysis
- Enterprise risk management (ERM)
This section focuses on identification and management of risk. So you can expect lots of questions on this theme. Do not ignore ERM, as typically a lot of questions are asked from it.
Investment Decisions (15%)
This paper is just the opposite of Section B: Corporate Finance, which focused on ways in which companies raise finance. This section is all about how companies should invest. You will learn a lot about who to evaluate investment options on behalf of a company.
The topics included in this section are:
- Flow estimates
- Discounted cash flow concepts
- Internal rate of return
- Net present value
- Discounted payback
- Risk analysis and real options
Professional Ethics (10%)
This might be the last section, but it is one of the most important nonetheless. The nuances of corporate ethics are instilled in the candidates, and they are made aware of being ethical in their profession, as well as doing business ethically.
You will not face any problems in understanding and remembering the principles and the standards of ethics as they concise and easy to memorize. You need to thoroughly make yourself thoroughly aware of the Standards of Ethics and how they can be applied in the live business scenarios.
Knowledge level required:
As in Part 1 of the exams, the candidates are expected to reach Knowledge Level C in CMA Part 2 exams as well.
The knowledge expectation for Level C has been defined by ICMA as requiring requires all six skill levels, knowledge, comprehension, application, analysis, synthesis, and evaluation. This means that candidates will have to have a thorough understanding of all the essential concepts and also be able to apply the knowledge in practical scenarios.
The CMA Part 2 exams are tough, but the good news is that the pass percentages for this paper are higher than that of Part 1. Once you set up a plan and study smartly, you should be able to taste success in the examinations comfortably. If you need help, look at the CMA Preparatory materials that we provide, or contact us directly.