The CFA Syllabus, Explained With Two Cows

Ever feel that the CFA syllabus is a little incomprehensible at times?

Every topic makes sense when you’re going through it, but for me, it’s difficult to recall at short notice what each topic is about. 

10 main topics, each fairly different yet connected. How does one sum each topic up in a succinct way?

To help you along, we present to you the 10 CFA topics summarized using a two-cow analogy (ahem). Feel free to share and pass it on, or put it up on your wall while studying.

Enjoy!

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Ethics

You have two cows.

You receive a farmer’s handbook.

You learn that if your cows produce extra milk today, you can’t tell friends and family first. Instead, you must announce it in the town square so that everyone knows at the same time.

But if you want to paint your cows magenta it should be totally OK, because the handbook doesn’t say that’s wrong.

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Quantitative Methods

You have two cows.

Each cow gives 5 pints of milk daily, and gives birth to another milk-producing cow every 10 years.

You try and figure out how much your cow is worth if paid today.

In milk.

All at once.

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Economics

You have two cows.

You shoot every other cow in the county.

You’re now the sole provider of milk.

Your farm can now maximize its profit through market inefficiencies.

Enjoy the rising milk prices.

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Financial Reporting & Analysis

For milk volume record retention, the Farmers’ Agricultural Standards for Bovines (FASB) currently recognizes US-GALLON as the authoritative measure for milk.

However, as of 2021, the Society for Ethical Cattle (SEC) prefer the standardized LITER measurement.

Be sure to know the differences.

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Corporate Finance

You name your cows Project 1 and Project 2.

Using NPV and IRR methods, you try and determine which is the better cow, and therefore your favorite.

Then you learn about sunk costs, and realize none of your calculations matter because you’ve already paid for the cows.

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Portfolio Management

It’s not just about the milk.

You have to consider your cows’ likelihood of dying of old age, getting eaten by rabid hyenas, eloping to Vegas, or overthrowing the government.

Only then can you know what your cow is worth.

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Equity

You have two cows.

Given that you know how much milk your cows produce, you calculate and value your cows’ sale price.

You write these prices daily with a marker on a big board in the middle of the town market.

This is called ‘mark to market’.

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Fixed Income

Do your cows produce milk at a fixed volume, weather-dependent variable volumes, or do not produce milk at all?

This last category of cows are known as zero-coupon cows or bullet cows, because, you know.

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Derivatives

You agree to buy two more cows from Farmer John one year from now for $3,500.

At time of sale, you find out that the market price of two cows is $4,000.

Farmer John is now not returning your… calls.

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Alternative Investments

You sell one of your cows and buy a bull.

Forget milk – breeding is the next big thing.

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Heh, hope that lightened up your day! Which is your favorite two cow CFA topic?

Meanwhile, you may find these related articles of interest:

• 2023 CFA curriculum changes and topic weights
• What is CFA exam? A beginner’s guide
• Here are the best topic study order for Level 1, Level 2 and Level 3