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May 6, 2026
Having a solid grasp of the foundational concepts and calculations is essential to excel in the Equities section of the CFA® Level I exam. It holds significant importance in the exam, and you should dedicate a few weeks in your study plan for this topic area.
It is easy to get bogged down by the calculations in Equities, but as demonstrated in the reading summaries, these only make up a small proportion of the syllabus. You should not expect the majority of Equities questions to include calculations. Instead of trying to memorize each calculation:
Focus on the interpretation of the numbers rather than the calculations
Practice as many questions as you can using specific CFA Level I sample questions and Level I mock exams
Throughout your prep stay organized to keep track of your progress
Learning Outcome Statements while studying for a CFA exam refer to specific skills and concepts you should possess within an exam topic whereas exam topics describe the broader body of knowledge you should have. For example, the Equities exam topic at Level I has many LOS that you’ll need to learn.
An example of a CFA LOS for Equities is “contrast the inputs used in dividend discount, free cash flow to equity (FCFE), free cash flow to the firm (FCFF), and residual income models, and explain the process for using present value models to value equity.”
Purchasing stock in companies is one of the largest investment types in most markets, making it crucial as a CFA candidate to understand the characteristics of equity investments, how the markets operate and how to value current or potential equity interests, in order to make suitable investment decisions.
Understanding how to differentiate between risks that impact all companies and those which are company-specific is also crucially important as you develop your CFA skills.
The Equities topic represents 11%-14% of the Level I exam, which is approximately 19-25 questions. This topic is tested in the afternoon session, within the Assets Functional Area, alongside Fixed Income, Derivatives, and Alternative Investments.
The Equities topic includes both conceptual and quantitative content, and is therefore a technically challenging area. It introduces a lot of terminology to become comfortable with, and question practice will help a huge amount with this.
Equities is a standalone topic, so can be studied at any point. Some candidates like to study Equities alongside the other topics it is tested with on exam day:
So they are able to understand the differences (and similarities) between the different assets. Make sure you study Equities after Quantitative Methods as the Time Value of Money techniques will be needed here.
Below are overviews of each Level I Equities reading and what you are expected to learn.
The Equities topic area begins with a reading that describes equity securities such as common and preferred shares, including features they might have such as being callable, putable, or convertible. The reading also distinguishes between publicly and privately held equity ownership and introduces the company life cycle, which is referred to throughout the topic area.
This reading discusses the rights of shareholders, particularly voting on company matters. It also addresses methods for investing in foreign companies and the issues involved in dual-class share structures.
Here we distinguish between the primary market, where securities are first issued to the public, and the secondary market, where existing securities trade among members of the public. Measures of liquidity in the secondary market are the first Equities concept we encounter that requires calculations.
As we saw in Quantitative Methods, returns on equity investments come from capital appreciation (price changes) and capital distribution (dividends). In this reading we learn the details about how dividends are declared and paid, calculate the price return and total return on an equity security, and examine the effect on return of reinvesting dividends.
This reading introduces a number of concepts that will be used in the valuation readings that follow, especially the distinction between absolute (discounted cash flow or asset-based) and relative (price multiple-based) valuation approaches.
Lots of calculations here that are core knowledge for a financial analyst. The key idea is that the value of a stock today is the present value of its future cash flows. Learn the constant growth model by heart and understand how it fits into a two-stage approach. Also be sure to know the different ways an analyst might measure future cash flows (dividends, FCFE, FCFF, EBITDA, residual income) and when each of these is most appropriate.
In contrast with discounted cash flow models, the method of comparables values a stock based on average price multiples (such as price-to-earnings or enterprise value-to-EBITDA) of its peer companies. Focus here on what makes a particular multiple appropriate (or less appropriate) for valuing a company. The reading introduces a variety of measures an analyst might need for this valuation approach, such as normalized earnings and the present value of growth opportunities.
This reading extends the discussion of financial statement modeling that we saw in Financial Statement Analysis. It describes approaches to forecasting a company’s revenues, expenses, long-term assets, and financing, and how the appropriate modeling approach changes with a company’s life cycle stage.
How do we understand what is happening within an industry? This reading introduces various tools such as understanding what constitutes an industry, analyzing the stage of the industry life cycle, and using Porter’s five forces to understand factors such as the barriers to entry and the level of competition, as well as discussing how external influences (political, economic, social, technological, legal, environmental) affect the industry.
Having analyzed the industry in which a company operates, an analyst evaluates how a company creates value relative to its peers by evaluating its competitive strategy. Be able to define and distinguish among a cost leadership strategy, a differentiation strategy, and a focus strategy. Understand how to analyze a company’s revenue drivers based on financial statements (bottom-up) or based on economic and industry factors (top-down).
Here we examine the basic structure and key items typically included in a company research report, and distinguish between sell-side and buy-side equity analysis in terms of their different purposes and approaches.
The Equities topic area concludes by discussing single-factor and multi-factor equity pricing models, many of which are explored in greater depth at Level II.
For Equities, it’s the Time Value of Money buttons (N, I/Y etc) on your BAII Plus which will come in most handy, alongside the CF function (which also calculates the present value of cashflows, but allows different cashflows each period unlike the TVoM payment (PMT) button).
Answer these 5 CFA practice questions to test your readiness for the Level I Exam.
Equities is a slightly larger topic on the Level II exam than in the Level I exam. The information covered in Level I is assumed knowledge as you move into Level II so it’s well worth the time investment to be comfortable with the fundamentals.
The focus at Level II Equities is on more complex valuation methods - some build upon the calculations covered in Level I, and a few new methods are also introduced.
Looking for more guidance on how to prepare for Equities? Enroll in one of our CFA Level I Premium study packages to receive expert instruction, CFA Program study materials, and more. Give yourself the best chance to prepare, practice, and perform on the CFA exam.
Written by Kaplan Schweser experts, reviewed by Craig Prochaska, CFA.
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