CB1: Study Guide Page 1

Subject CB1
2025 Study Guide
Contents

Section 1 Introduction Page 1

Section 2 Subject sequencing and contents Page 2
Section 3 Syllabus Page 4
Section 4 Core Reading Page 10
Section 5 Skills and assessment Page 10
Section 6 ActEd study support Page 14
Section 7 General support and information Page 16

1 Introduction
This Study Guide has been created to help you navigate your way through Subject CB1. It
contains useful information you will need before starting to study Subject CB1 for the 2025
exams. You may also find it useful to refer to throughout your studies.

Further information on study skills can be found on our website at ActEd.co.uk.

Please read this Study Guide carefully before reading the Course Notes, even if you have studied
for some actuarial exams before.

Before you start

When studying for the Institute and Faculty of Actuaries’ exams, you may need:
 a copy of the Formulae and Tables for Examinations of the Institute and Faculty of
Actuaries, 2nd Edition (2002) – these are referred to simply as the Tables
 a scientific calculator and/or software package to help with calculations.

The Tables are available from the Institute and Faculty of Actuaries’ eShop. Please visit
actuaries.org.uk.

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2 Subject sequencing and contents

2.1 Links to other subjects

Associateship Qualification
Business Finance (Subject CB1) is considered a fundamental subject contributing to the
foundations of the Associateship Qualification. Knowledge gained from this subject is implicitly
assumed and applied across many other subjects, in particular:
 Business Economics (Subject CB2)
 Business Management (Subject CB3)
 Actuarial Mathematics for Modelling (Subject CM1)
 Actuarial Practice (Subject CP1).

Fellowship Qualification
An understanding of Business Finance may be required for any of the Specialist Advanced (SA)
examinations, particularly as these examinations tend to focus on ‘real world’ scenarios, and the
subject is particularly relevant for the potential scenarios presented in Investment & Finance
Specialist Principles (Subject SP5), Pensions & Other Benefits (Subject SA4) and Investment &
Finance (Subject SA7) examinations.

2.2 Subject contents

There are six parts to the Subject CB1 course. The parts cover related topics and are broken down
into chapters. At the end of parts 2, 4 and 6 there is an assignment testing the material from the
previous two parts.

The following table shows how the parts and chapters relate to each other. The final column
shows how the chapters relate to the days of the regular tutorials. This table should help you plan
your progress across the study session.

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No of X Tutorial –
Part Chapter Title
pages Assignment 3 days
1 Key principles of finance 26
Key principles of corporate governance and
2 15
ethics
1
3 Business ownership 20
4 Taxation 22
5 Long-term finance 39 X1 1
6 Issue of shares 30
2 7 Short- and medium-term finance 20
8 Alternative sources of finance 18
9 Introduction to accounts 39
3 10 The main accounts 34
11 Constructing accounts 52
Accounts for groups, insurance companies X2 2
12 27
and banks
4
13 Interpreting accounts (1) 27
14 Interpreting accounts (2) 31
15 Derivatives 22
5 16 Growth and restructuring of companies 17
17 Weighted average cost of capital 37
18 Capital structure and dividend policy 36 X3 3

6 19 Capital project appraisal (1) 31

20 Capital project appraisal (2) 27

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3 Syllabus
The Syllabus for each subject is produced by the Institute and Faculty of Actuaries. It includes
information to support the study of this subject. The Syllabus will guide you through what you
need to learn, the application of learning, as well as the skills that you need to develop.

Students can use the Syllabus as a guide for learning and development. We recommend that you
use the Syllabus as an important part of your study.

3.1 Aim
Develop an understanding of the key principles underpinning corporate finance and governance,
including a knowledge of the instruments used by companies to raise finance and manage financial
risk. The understanding and interpreting of the accounts and financial statements of companies as
well as financial institutions is also developed.

3.2 Topics and topic weightings

This subject covers the following topics:
1. Corporate governance and organisation (18%)
2. How corporates are financed (35%)
3. Evaluating projects (15%)
4. Constructing and interpreting company accounts (32%)

The topic weighting percentage noted alongside the topics is indicative of the volume of content
of a topic within the subject and therefore broadly aligned to the volume of marks allocated to
this topic in the examination. For example, if a topic is 20% of the subject then you can expect
that approximately 20% of the total marks available in the examination paper will be available on
that topic.

Students should ensure that they are well prepared across the entire syllabus and have an
understanding of the principal terms used within the course.

3.3 Objectives
The detailed syllabus objectives for Subject CB1 are given below. To the right of each objective are
the chapter numbers in which the objective is covered in the ActEd course. The relevant
individual syllabus objectives are also included at the start of each course chapter.

1. Corporate governance and organisation (18%)

Understand corporate governance and regulation and the different objectives and
stakeholders that companies might try to satisfy.

1.1 The regulation of financial reporting of incorporated entities. (Chapter 2)

1.2 Key principles of corporate governance and the regulation of companies.

(Chapter 2)

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1.3 Key principles of finance. (Chapter 1)

1.3.1 Relationship between finance, real resources and objectives of an organisation.

1.3.2 Relationship between the stakeholders in an organisation (including lenders and

investors).

1.3.3 Role and effects of the capital markets.

1.3.4 Maximisation of shareholder wealth and the strategies designed to achieve it.

1.3.5 Problems relating to the maximisation of shareholder wealth in practice: social

responsibility concerns, agency problems and divergent objectives.

1.3.6 Determinants of value and the actions managers can take to influence value.

1.4 Ethical responsibilities of the owners and managers of businesses. (Chapter 2)

2. How corporates are financed (35%)

Know the different types of corporations, how they are structured and financed and
factors which should be considered when deciding on their structure.

2.1 Structure and methods of financing a company.

2.1.1 Characteristics of sole traders, partnerships, limited companies and social

enterprises as business entities. (Chapter 3)

2.1.2. Different types of loan and share capital. (Chapter 5)

2.1.3 Authorised and issued share capital. (Chapter 5)

2.1.4 The main differences between a private and public company. (Chapter 3)

2.1.5 Advantages to a company of limited liability. (Chapter 3)

2.1.6 Different types of medium-term company finance: (Chapter 7)

 credit sale
 leasing
 bank loans.

2.1.7 Different types of short-term company finance: (Chapter 7)

 bank overdrafts
 trade credit
 factoring
 bills of exchange
 commercial paper.

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2.1.8 Alternative methods of raising finance outside the regular banking system,
including ‘shadow banking’, direct project financing, peer-to-peer lending, crowd-
funding and micro-finance. (Chapter 8)

2.2 Principles of personal and corporate taxation. (Chapter 4)

2.2.1 Taxation of personal income and capital gains.

2.2.2 Company taxation, including for the individual shareholder.

2.2.3 Different systems of company taxation from the points of view of an individual
shareholder and the company.

2.2.4 The principles of double taxation relief in the international corporate tax system.

2.2.5 Taxation and the use of offshore investment funds.

2.3 Principal forms of financial instrument issued or used by private companies and
the ways in which they may be issued.

2.3.1 Reasons for seeking a quotation on a stock exchange. (Chapter 6)

2.3.2 How shares are issued and traded. (Chapter 6)

2.3.3 The advantages and disadvantages of remaining as a private company versus

becoming a publicly quoted company. (Chapter 6)

2.3.4 Characteristics of the following: (Chapter 5)

 debenture stocks
 unsecured loan stocks
 Eurobonds
 preference shares
 ordinary shares
 convertible unsecured loan stocks
 convertible preference shares
 contingent convertibles
 floating rate notes
 subordinated debt
 asset-backed securities
 options issued by companies.

2.3.5 Characteristics and possible uses by a non-financial company of: (Chapter 15)
 financial futures
 options
 interest rate and currency swaps.

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2.3.6 Methods of obtaining a quotation for securities: (Chapter 6)

 offer for sale
 offer for sale by tender
 offer for subscription
 placing
 introduction.

2.3.7 Rights issue to existing shareholders. (Chapter 6)

2.3.8 Role of underwriting in the issue of securities. (Chapter 6)

2.4 Factors a company should consider when deciding on its capital structure and
dividend policy. (Chapter 18)

2.4.1 Impact of chosen capital structure on the market valuation of the company.

2.4.2 Impact of taxation on the capital structure chosen by a company.

2.4.3 Principal factors a company should consider in setting dividend policy and the
impact on the market valuation.

2.4.4 Alternative ways of distributing profits, such as buybacks.

2.5 Corporate growth, restructuring and divestment. (Chapter 16)

2.5.1 Why companies want to grow larger, how companies achieve internal growth and
the relationship between growth and profitability.

2.5.2 Constraints on a company’s growth.

2.5.3 Why a company may wish to divest subsidiaries or business units.

3. Evaluating projects (15%)

Understand the evaluation of investment projects in a corporate setting.

3.1 Interaction of the cost of capital of a company with the nature of the investment
projects it undertakes. (Chapters 17, 19 and 20)

3.1.1 A company’s cost of capital.

3.1.2 The calculation a company’s weighted average cost of capital.

3.1.3 Principal methods used to determine the viability of a capital project.

3.1.4 Cashflow projections and the application of techniques to estimate cashflows.

3.1.5 Methods used to evaluate risky investments including simulation, scenario

planning and certainty equivalents.

3.1.6 Determination of the required rate of return for a capital project.

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3.1.7 Factors underlying the choice of discount rate within project assessment,
including:
 assumptions underlying the limitations of the use of the weighted average
cost of capital
 allowance for leverage
 allowance for risk.

3.1.8 Methods to identify risks present for different types of project.

3.1.9 Techniques to identify the probability and financial impact of different risks
occurring over varying timescales.

3.1.10 Techniques to ascertain the distribution of possible financial outcomes of a capital

project.

4. Constructing and interpreting company accounts (32%)

Understand the construction and interpretation of company accounts.

4.1 Basic construction and principal features of the different types of company
accounts and reports. (Chapters 9 to 12)

4.1.1 Reasons why companies are required to produce annual reports and accounts.

4.1.2 Value of financial reporting on environmental, social and economic sustainability.

4.1.3 Alternatives to traditional financial reporting.

4.1.4 Relevant accounting concepts in the drawing up of company accounts.

4.1.5 The purpose of:

 a statement of financial position
 a statement of comprehensive income
 a cashflow statement
 the notes to the accounts.

4.1.6 The construction of simple statement of financial position and statement of profit
or loss.

4.1.7 Interpretation of cashflow statements.

4.1.8 The basic structure and content of insurance company accounts.

4.1.9 The basic structure and content of banking company accounts.

4.1.10 Difference between a subsidiary company and associate company.

4.1.11 Purpose of consolidated accounts.

4.1.12 Treatment of depreciation in company accounts.

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4.1.13 Meaning of share capital, other reserves and retained earnings.

4.2 Interpreting company accounting information. (Chapters 13 and 14)

4.2.1 Priority percentages and gearing.

4.2.2 Interest cover and asset cover for loan capital.

4.2.3 The impact of interest rate movements on a highly geared company.

4.2.4 The price earnings ratio, dividend yield, dividend cover and Earnings Before
Interest, Taxation, Depreciation and Amortisation (EBITDA).

4.2.5 The calculation of accounting ratios that indicate:

 profitability
 liquidity
 efficiency.

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4 Core Reading
This section explains the role of the Core Reading and how it links to the Syllabus, supplementary
ActEd text and the examination.

4.1 Core Reading

The Core Reading has been produced by the Institute and Faculty of Actuaries. It supports
students in their learning and development of this subject by providing information and
explanation of the topics and objectives in the Syllabus.

The Core Reading is updated annually to reflect any changes to the Syllabus and current practice,
as well as for continuous improvement.

The current version of the Core Reading is up-to-date as of 31 May 2024. It references the version
of any legislation, standards, professional guidance, etc as of this date. Any known upcoming
changes to the references are noted where relevant in the Core Reading.

Accreditation
The Institute and Faculty of Actuaries would like to thank the numerous people who have helped
in the development of the material contained in the Core Reading.

Further reading
A list of additional resources to support candidate learning and development for this subject can
be found on the Module pages on the Institute and Faculty of Actuaries’ website:

actuaries.org.uk/curriculum/

4.2 Links to the Syllabus

Each part of the Core Reading relates directly to the Syllabus.

The relevant syllabus objectives are included at the start of each chapter for reference.

The Core Reading supports coverage of the Syllabus in helping to ensure that both depth and
breadth are re-enforced.

4.3 Links to the examination

Examiners can set questions based on any area of the Syllabus within any examination sitting and
will consider and draw from the Core Reading when setting examinations questions.

Students will be expected to apply the Core Reading to scenarios and questions proposed by the
examiners.

The exams in April and September 2025 will be based on the Syllabus and Core Reading as at
31 May 2024. We recommend that you always use the up-to-date Core Reading to prepare for
the exams.

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Past papers indicate to students how the examiners apply the Core Reading. The Examiners’
Reports provide further insight as to how students answered the questions and how marks were
awarded.

4.4 ActEd text

The Core Reading deals with each syllabus objective and covers what is needed to pass the exam,
and the Subject CB1 Course Notes include the Core Reading in full, integrated throughout the
course.

However, the tuition material that has been written by ActEd enhances it by giving examples and
further explanation of key points. Here is an excerpt from some ActEd Course Notes to show you
how to identify Core Reading and the ActEd material. Core Reading is shown in this bold font.

In the example given above, the index will fall if the actual share price goes below the theoretical
ex-rights share price. Again, this is consistent with what would happen to an underlying portfolio.

After allowing for chain-linking, the formula for the investment index then becomes:
This is
 Ni,t Pi,t ActEd
I (t )  i
B(t ) text

where Ni ,t is the number of shares issued for the ith constituent at time t; This is Core
Reading
B (t ) is the base value, or divisor, at time t.

Copyright
All study material produced by ActEd is copyright and is sold for the exclusive use of the
purchaser. The copyright is owned by Institute and Faculty Education Limited, a subsidiary of the
Institute and Faculty of Actuaries. Unless prior authority is granted by ActEd, you may not hire
out, lend, give out, sell, store or transmit electronically or photocopy any part of the study
material. You must take care of your study material to ensure that it is not used or copied by
anybody else.

Legal action will be taken if these terms are infringed. In addition, we may seek to take
disciplinary action through the Institute and Faculty of Actuaries or through your employer.

These conditions remain in force after you have finished using the course.

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5 Skills and assessment

5.1 Technical skills

Subjects CB1 and CB2 are less mathematical than the other Core Principles subjects, instead
involving in-depth understanding of economics / business / accounting principles.

5.2 Exam skills

In each examination, students will be expected to demonstrate, through their answers, that they
have knowledge of, can apply and use higher order skills in this subject:
 Knowledge will be demonstrated through answering questions that assess understanding
of that knowledge as well as through questions that ask for the application of relevant
knowledge to scenarios.
 Application will be demonstrated through answering questions that assess the ability to
identify and apply relevant concepts and skills to solve problems (both numerical and
non-numerical).
 Higher order skills will be demonstrated through questions that will assess the ability to
use relevant knowledge, concepts and skills to solve problems, draw appropriate
conclusions, and make meaningful and appropriate comments on those conclusions.

In Subject CB1, the approximate split of assessment across the three skill types is:
 Knowledge – 30%
 Application – 50%
 Higher Order skills – 20%.

The Institute and Faculty of Actuaries use command verbs (such as ‘Define’, ‘Discuss’ and
‘Explain’) to help students to identify what the question requires. The examination can be
composed of questions drawing from any part of the syllabus and using any command verb.

The Institute and Faculty of Actuaries has produced guidance on ‘Command verbs used in the
Associate and Fellowship examinations’, to help students to understand what each command
verb is asking them to do.

You can find the relevant document on the Institute and Faculty of Actuaries’ website at:

actuaries.org.uk/qualify/prepare-for-your-exams

5.3 Assessment
At the time of writing it is unknown what the assessment method is for Subject CB1. The IFoA
have previously announced that the exam will be changing to Objective-Based Assessment (OBA),
but it is unclear when this change will take place. You should therefore monitor communications
from the IFoA for further details.

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If it is to be an Objective Based Assessment (OBA), the assessment is expected be in the form of a

1 hour 40 minute timed, online objective-based assessment (OBA) examination. This is likely to
consist of 60 questions of varying styles. Sample questions illustrating the form of the question
types are available on the IFoA website.

If it is to use a traditional (non-OBA) approach, the assessment is expected to consist of one

3 hour 20 minute timed, online examination. This time includes reading time, as well as the time
taken for students to download and/or print the question paper.

In this case, students can expect to answer a number of questions of varying marks, using
Microsoft Word to construct and type their answers.

5.4 Further information

The Institute and Faculty of Actuaries has produced a number of documents, which it advises
students to read and understand. In particular, the:
 Qualification Handbook, which contains information on studying and preparing for exams,
as well as available support and resources
 Examinations Handbook, which contains practical assistance on how to sit an Institute and
Faculty of Actuaries’ examination
 Assessment Regulations document, which includes rules on eligibility, entry and conduct
during an online assessment.

The Qualification Handbook can be found at:

actuaries.org.uk/qualify/student-and-associate-exam-news/qualification-handbook

The Examinations Handbook and Assessment Regulations document can be found at:

actuaries.org.uk/qualify/my-exams/ifoa-exams

IMPORTANT NOTE: These documents may be updated and re-published in the weeks leading up
to each exam session. It is important that you keep up-to-date with any changes and
developments.

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6 ActEd study support

An overview of ActEd’s products and services, and guidance on how to choose the best ones for
you, can be found on our website at ActEd.co.uk/productguide.

6.1 Summary of ActEd products and services

Detailed descriptions of all ActEd’s products and services can be found on our website at
ActEd.co.uk. The details of the specific products and services available for Subject CB1 are
dependent on the assessment method, which is uncertain at the time of writing. However,
available products and services are likely to consist of:
 Course Notes
 X Assignments*
 Series X Marking (if non-OBA)
 Online Classroom – around 60 tutorial units
 Flashcards
 Past Exam Questions with ActEd Solutions (PEQAS) (if OBA)
 ASET (2020 to 2023) – four years of exam papers, ie eight sittings (if non-OBA)
 Mini ASET – covering the April 2024 exam paper (if non-OBA)
 Mock Exam* – one exam-style test
 Additional Mock Pack (AMP)* – two additional exam-style tests
 Mock Exam Marking (if non-OBA)
 Marking Vouchers (if non-OBA).

Products are generally available in both paper and eBook format. Visit ActEd.co.uk for full details
about available eBooks, software requirements and restrictions.

* If OBA, X Assignments and mock exams will be delivered through our virtual learning
environment, The Hub, and – given the online, objective-based nature – there will be no marking
services. If non-OBA, you should use the three X Assignments that are included in this CMP, and
the mock exams that will be delivered to you in the usual way.

ActEd might release additional products throughout the year so please keep an eye on our
website at ActEd.co.uk for the latest news on products.

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6.2 Tuition
The following tutorials are typically available for Subject CB1:
 Regular Tutorials (three full days / six half days)
 Block Tutorials (three days).

Tutorials are typically available both face-to-face and live online.

Full details are set out in our Tuition Bulletin, which is available on our website at ActEd.co.uk.

6.3 Questions and queries

Our online discussion forum at ActEd.co.uk/forums (or use the link from our home page at
ActEd.co.uk) is dedicated to actuarial students so that you can get help from fellow students on
any aspect of your studies from technical issues to study advice. ActEd tutors visit the site
regularly to ensure that you are not being led astray and we also post other frequently asked
questions from students on the forum as they arise.

If you are still stuck, then you can send queries by email to the Subject CB1 email address
CB1@bpp.com, but we recommend that you try the forum first. We will endeavour to contact
you as soon as possible after receiving your query but you should be aware that it may take some
time to reply to queries, particularly when tutors are running tutorials. At the busiest teaching
times of year, it may take us more than a week to get back to you.

If you have many queries on the course material, you should raise them at a tutorial or book a
personal tuition session with an ActEd tutor. Please email ActEd@bpp.com for more details.

6.4 Feedback
If you find an error in the course, please check the corrections page of our website
(ActEd.co.uk/paper_corrections.html) to see if the correction has already been dealt with.
Otherwise, please send the details via email to the Subject CB1 email address CB1@bpp.com.
Our tutors work hard to ensure that the courses are as clear as possible and free from errors.

ActEd also works with the Institute and Faculty of Actuaries to suggest developments and
improvements to the Syllabus and Core Reading. If you have any comments or concerns about
the Syllabus or Core Reading, these can be passed on via ActEd. Alternatively, you can send them
directly to the Institute and Faculty of Actuaries’ Examination Team by email to
memberservices@actuaries.org.uk.

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7 General information and support

7.1 Safeguarding
We want you to feel comfortable within our learning environment and safe in the knowledge that
if you ever needed support, you know where to go.

If you need support, please contact BPP’s Safeguarding team at safeguarding@bpp.com or for
urgent concerns call 07464 542 636.

Additional information can be found at ActEd.co.uk/learningsupport.

7.2 BPP learning support

BPP’s Learning Support team offers a wide range of support for all students who disclose a
learning difficulty or disability. This support is accessible to all ActEd students free of charge.

Please contact BPP’s Learning Support team at LearningSupport@bpp.com for more information.

Additional information can be found at ActEd.co.uk/learningsupport.

7.3 The Prevent Duty

The Prevent Duty is to protect people from radicalisation and being drawn into extremist views
and terrorism. As a Government-regulated training provider, ActEd has a duty to ensure that our
learners are well informed and stay safe, and to empower our students to know what to look for
and when to report concerns.

Please report any concerns to a tutor or email safeguarding@bpp.com or for urgent concerns call
07464 542 636.

More information is available at:

 ActEd.co.uk/learningsupport
 officeforstudents.org.uk/advice-and-guidance/student-wellbeing-and-
protection/counter-terrorism-the-prevent-duty/

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