ACCA F9 Financial Management - 2010 - Study text - Emile Woolf Publishing
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ACCA
F9 Study Text
Financial Management
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ACCA
Paper
F9
Financial management
Publishing
Publishing
Welcome to Emile Woolf‘s study text for
Paper F9 Financial management which is:
Written by tutors
Comprehensive but concise
In simple English
Used around the world by Emile Woolf Colleges including
China, Russia and the UK
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Acknowledgements
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CharteredCertifiedAccountants.
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides iii
Paper F9
Financial management
C
Contents
Page
Syllabus and study guide 1
New terminology and presentation of financial statements 13
Chapter 1: The financial management function
15
Chapter 2: The financial management environment 39
Chapter 3: Working capital management
57
Chapter 4: Management of working capital: inventory control 79
Chapter 5: Management of receivables and payables 97
Chapter 6: Cash management 117
Chapter 7: Introduction to investment appraisal and capital investment
decisions 139
Chapter 8: Discounted cash flow 155
Chapter 9: DCF: taxation and inflation 181
Chapter 10: DCF: risk and uncertainty 195
Chapter 11: Capital investment appraisal: further aspects 209
Chapter 12: Sources of equity finance 223
Chapter 13: Sources of finance: debt capital 243
Chapter 14: Capital structure 255
Chapter 15: Finance for small and medium sized entities (SMEs) 265
Chapter 16: Cost of capital 275
Chapter 17: Capital asset pricing model (CAPM) 303
Chapter 18: Business valuations 325
iv
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Page
Chapter 19: Foreign exchange risk 357
Chapter 20: Interest rate risk 397
Answers to exercises 433
Practice questions 443
Answers 475
Appendix 523
Index 527
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 1
Paper F9
Financial management
S
Syllabus and study guide
Aim
To develop the knowledge and skills expected of a financial manager, relating to
issues affecting investment, financing, and dividend policy decisions.
Main capabilities
After completing this examination paper students should be able to:
A Discusstheroleandpurposeofthefinancialmanagementfunction
B Assessanddiscusstheimpactoftheeconomicenvironmentonfinancial
management
C Discussandapplyworkingcapitalmanagementtechniques
D Carryouteffectiveinvestmentappraisal
E Identifyandevaluatealternativesourcesofbusinessfinance
F Explainandcalculatecostofcapital
andthefactorswhichaffectit
G Discussandapplyprinciplesofbusinessandassetvaluations
H Explainandapplyriskmanagementtechniquesinbusiness
Rationale
The syllabus for Paper F9, Financial Management, is designed to equip candidates
with the skills that would be expected from a finance manager responsible for the
finance function of a business. The paper, therefore, starts by introducing the role
and purpose of the financial management function within a business. Before looking
at the three key financial management decisions of investing, financing, and
dividend policy, the syllabus explores the economic environment in which such
decisions are made.
Paper F9: Financial management
2 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
The next section of the syllabus is the introduction of investing decisions. This is
done in two stages – investment in (and the management of) working capital and
the appraisal of long-term investments.
The next area introduced is financing decisions. This section of the syllabus starts by
examining the various sources of business finance, including dividend policy and
how much finance can be raised from within the business. Cost of capital and other
factors that influence the choice of the type of capital a business will raise then
follows. The principles underlying the valuation of business and financial assets,
including the impact of costs of capital on the value of business is covered next.
The syllabus finishes with an introduction to, and examination of, risk and the main
techniques employed in the management of such risk.
Relational diagram of main syllabus capabilities
Sources of business
finance (E)
Investment appraisal
techniques (D)
Business valuations (G)
Cost of Capital (F)
Risk management (H)
Financial management environment (B)
Financial management
function (A)
Working capital
management (C)
Syllabus and study guide
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 3
Detailed syllabus
A Financial management function
1 The nature and purpose of financial management and the relationship
with financial and management accounting.
2 Financial objectives and relationship with corporate strategy
3 Stakeholders and impact on corporate objectives
4 Financial and other objectives in not-for-profit organisations
B Financial management environment
1 The economic environment for business
2 The nature and role of financial markets and institutions
C Working capital management
1 The nature, elements and importance of working capital
2 Management of inventories, accounts receivable, accounts payable and
cash
3 Determining working capital needs and funding strategies
D Investment appraisal
1 The nature of investment decisions and the appraisal process
2 Non discounted cash flow techniques
3 Discounted cash flow (DCF) techniques
4 Allowing for inflation and taxation in DCF
5 Adjusting for risk and uncertainty in investment appraisal
6 Specific investment decisions (lease or buy; asset replacement, capital
rationing etc.)
E Business finance
1 Sources of, and raising short-term finance
2 Sources of, and raising long-term finance
3 Internal sources of finance and dividend policy
4 Gearing and capital structure considerations
5 Finance for Small and Medium-size Entities (SMEs)
F Cost of capital
1 Sources of finance and their relative costs
2 Estimating the cost of equity
3 Estimating the cost of debt and other capital instruments
4 Estimating the overall cost of capital
5 Capital structure theories and practical considerations
6 Impact of cost of capital on investments
G Business valuations
1 Nature and purpose of the valuation of business and financial assets
2 Models for the valuation of shares
3 The valuation of debt and other financial assets
4 Efficient market hypothesis (EMH) and practical considerations in the
valuation of shares
Paper F9: Financial management
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H Risk management
1 The nature and types of risk and approaches to risk management
2 Causes of exchange rate differences and interest rate fluctuations
3 Hedging techniques for foreign currency risk
4 Hedging techniques for interest rate risk
Approach to examining the syllabus
The syllabus for Paper F9 has the aim of developing in students the skills expected
from a financial manager who is responsible for the finance function of a business.
The paper also prepares candidates for more advanced and specialist study in Paper
P4, Advanced Financial Management.
Examination structure
The examination paper contains four questions, all of which are compulsory. Each
question is worth 25 marks and has both computational and discursive elements.
The balance between computational and discursive content will continue in line
with the pilot paper.
Candidates are provided with a formulae sheet and tables of discount factors and
annuity factors.
Study guide
This study guide provides more detailed guidance on the syllabus. You should use
this as the basis of your studies.
A Financial management function
1 The nature and purpose of financial management
(a) Explain the nature and purpose of financial management.
(b) Explain the relationship between financial management and
financial and management accounting.
2 Financial objectives and the relationship with corporate strategy
(a) Discuss the relationship between financial objectives, corporate
objectives and corporate strategy.
(b) Identify and describe a variety of financial objectives, including:
(i) shareholder wealth maximisation
(ii) profit maximisation
(iii) earnings per share growth
3 Stakeholders and impact on corporate objectives
(a) Identify the range of stakeholders and their objectives
(b) Discuss the possible conflict between stakeholder objectives