This article explains the approach to examining Financial Management and clarifies any uncertainty regarding the content of the syllabus. For students planning to take this exam, a good place to start is the ACCA website, where the Financial Management Syllabus and Study Guide – together with the Specimen Exam and its suggested answers – can be found. The aim of Financial…
What you need to know about the objective test questions for session CBEs for PM, TX, FR, AA and FM. What you need to know about the objective test (OT) questions in Session CBE format exams for: Performance Management (PM) Taxation (TX) * Financial Reporting (FR) Audit and Assurance (AA) Financial Management (FM) * UK…
It has been noted in a number of examiner reports for Financial Management that calculation requirements are answered better than discursive requirements. Therefore, this article will look at how to answer a discursive requirement to a Financial Management question. First example First, let’s consider the following requirement from Question 32(c) of the September/December 2017 sample…
Is it possible to increase shareholder wealth by changing the capital structure? The first question to address is what is meant by capital structure. The capital structure of a company refers to the mixture of equity and debt finance used by the company to finance its assets. Some companies could be all-equity-financed and have no…
This article considers two methods a company could adopt in order to speed up the collection of cash from its customers. Adopting a rigorous receivables collection system is essential to the ability of a company to pay its suppliers and employees, and even survive. Even where such a system is adopted and effective steps are…
Project appraisal 1 – pure equity finance So now we have two ways of estimating the cost of equity (the return required by shareholders). Can this measurement of a company’s cost of equity be used as the discount rate with which to appraise capital investments? Yes it can, but only if certain conditions are met:…
A fundamental part of financial management is investment appraisal: into which long-term projects should a company put money? Discounted cash flow techniques (DCFs), and in particular net present value (NPV), are generally accepted as the best ways of appraising projects. In DCF, future cash flows are discounted so that allowance is made for the time…
This article has been updated to reflect the knowledge of basis risk that students are expected to have for Financial Management. Increasingly, many businesses have dealings in foreign currencies and, unless exchange rates are fixed with respect to one another, this introduces risk. There are three main types of currency risk as detailed below. Economic…
Investment appraisal is one of the core topics within Financial Management and it is a topic which has been well represented in the Financial Management exam. Investment appraisal is one of the eight core topics within Financial Management and it is a topic which has been well represented in the exam. The methods of investment appraisal are…
Section E of Financial Management syllabus deals with business finance: What types of finance? What sources? What mix? The article will first consider a business’s formation and initial growth, then a company that is well-established and mature, and will look at the financing choices and decisions that could face it at various stages. Formation and…
The Financial Management syllabus contains a section on Islamic finance (Section E3). All components of this section will be examined at intellectual level 1, knowledge and comprehension Although the concept of Islamic finance can be traced back about 1,400 years, its recent history can be dated to the 1970s when Islamic banks in Saudi Arabia…
This article suggests an approach for students to apply to a key area of the Financial Management syllabus before finishing with a worked example to demonstrate the technique discussed. The requirement to analyse suitable financing alternatives for a company has been common in Financial Management over the years. I am sure it will be examined again…
The calculation of equivalent annual costs is a tool that can be used by companies to assist in asset replacement decisions. Equivalent annual costs At some stage you have probably bought an asset such as a car, a washing machine or a computer and you may have considered how long you should keep that asset…
In this article, we consider potential finance sources that an SME could use, with a particular focus on the more modern sources of crowdfunding and supply chain financing. Prior to considering some of the finance sources available to small and medium-sized enterprises (SMEs) we should first consider what we mean by SMEs, why they are…
This article focuses on foreign accounts receivable, which present some additional challenges to a business that are not present with domestic-based customers. Foreign accounts receivable present some additional challenges to a business that are not present with domestic-based customers. It is harder for a business to pursue any overdue amounts from a business in another…
In the final article in his three-part series, we look at the theory, advantages and disadvantages of CAPM. Section E of the Financial Management study guide contains several references to the Capital Asset Pricing Model (CAPM). This article is the final one in a series of three, and looks at the theory, advantages, and disadvantages of the…
This article describes how to apply the CAPM when calculating a project-specific discount rate to use in investment appraisal. Project-specific discount rates Section E of the Study Guide for Financial Management contains several references to the Capital Asset Pricing Model (CAPM). This article, is the second in a series of three, and looks at applying the CAPM…
In the first of a three-part series of articles, we consider the CAPM and its components, shows how it can be used to estimate the cost of equity, and introduces the asset beta formula. The cost of equity Section E of the Study Guide for Financial Management contains several references to the Capital Asset Pricing…
This article looks at Section G of the Financial Management Study Guide relating to the management of interest rate risk. Section G of the Financial Management Study Guide specifies the following relating to the management of interest rate risk: (a) Discuss and apply traditional and basic methods of interest rate risk management, including: (i) matching and smoothing (ii)…
Section C2d) of the Financial Management Study Guide states that candidates should be able to ‘discuss, apply and evaluate the use of relevant techniques in managing accounts receivable’. Section C2d) of the Financial Management study guide states that students should be able to ‘discuss, apply and evaluate the use of relevant techniques in managing accounts receivable’. Further…
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