Qualification

new ACCA

examiner’s approach to Paper F9

financial
management
This article explains the approach to The aim of Paper F9 is to develop the the achievement of business objectives, the
examining Paper F9, Financial Management, knowledge and skills expected of a finance syllabus explores the link between objectives,
and clarifies any uncertainty regarding the manager – in relation to investment, financing, strategy, and stakeholders. Financial
content of the syllabus. For students planning and dividend decisions. The syllabus is management decisions are influenced by
to take this paper, a good place to start designed to equip candidates with the skills factors external to the organisation, so
is the ACCA website, where the Paper F9 that would be expected from a finance the syllabus also considers the impact of
Syllabus and Study Guide, together with the manager responsible for the finance function of government economic policy in key areas such
Pilot Paper and its Suggested Answers can a business. as interest rates and exchange rates, as well
be found. From a relational point of view, Paper F9 as the nature and role of financial markets
builds on knowledge gained through studying and institutions.
Paper F2, Management Accounting, and The next three sections of the syllabus look
also prepares candidates for further study of at working capital management, investment
financial management in Paper P4, Advanced appraisal, and sources of business finance.
Financial Management. Students who are Managing working capital is a key concern
exempt from Paper F2 should ensure that they of the finance manager, who must balance
are familiar with its content by referring to its the conflicting objectives of profitability and
Syllabus and Study Guide. liquidity. Investment decisions constitute
one of the three decision areas of financial
Syllabus and Study Guide management, and the finance manager must
The first two sections of the syllabus consider be able to identify relevant cash flows, and
the role and purpose of the finance manager, evaluate a proposed investment and its effect
and the financial management environment. on the organisation. Financing decisions,
As financial management decisions support another of the three decision areas, are

42 student accountant March 2007

considered in the business finance section of For students planning to take this The Pilot Paper
the syllabus. A finance manager must be able The Pilot Paper illustrates the kind of
to identify and evaluate the most appropriate paper, one place to start to clarify any questions that will be set. A feel for my style
sources of finance to meet organisational uncertainty regarding the content of writing can be gained by reviewing Paper
financing needs. 2.4, Financial Management and Control exam
One of the key relationships in financial
of the syllabus is the ACCA website, questions from 2003 onwards.
management is that between risk and return, where the Paper F9 Syllabus and Study Question 1 in the Pilot Paper requires
and the sixth section of the syllabus looks Guide, together with the Pilot Paper calculation of the weighted average cost of
at the cost of capital and the influence of capital (WACC) of a listed company, and
capital structure on the average cost of capital. and Suggested Answers can be found. a discussion of whether, theoretically, a
Candidates must be able to calculate the minimum WACC can be found. It also requires
cost of individual sources of finance and the an evaluation of the effect of a loan note issue
average cost of organisational finance, and identify and evaluate alternative sources of on three key ratios.
critically discuss whether financing choices business finance Question 2 requires a discussion of
can reduce the average cost of capital and explain and calculate cost of capital and the types of foreign currency risk and an
thereby increase the value of the organisation the factors that affect it explanation of how inflation rates can be used
as a whole. discuss and apply principles of business to forecast exchange rates. It also requires a
The next section of the syllabus looks at and asset valuations comparative evaluation of a money-market
business valuation. Candidates must be able explain and apply risk management hedge and a forward market hedge, and an
to value financial assets, such as ordinary techniques in business. explanation of how currency futures can be
shares and bonds, and a business as a whole. used to hedge foreign exchange risk.
Evaluation of financial choices is a key theme You will recognise that these eight capabilities Question 3 requires an evaluation of a
here and candidates are expected to be reflect the eight sections of the syllabus. proposed change in credit policy, application
able to discuss, as well as apply, a range of of the Miller–Orr model, and an explanation
valuation methods. Format of the exam of the key areas of accounts receivable
The final section of the syllabus looks The three-hour exam consists of four management. It also requires a discussion
at risk management in relation to foreign questions, all of which are compulsory and of the key factors influencing working capital
currency risk and interest rate risk. Candidates of equal length. Each question is worth funding policy.
should have an awareness of the different 25 marks. Question 4 requires calculation of net
types of foreign currency and interest rate risk, This format is commonly adopted by other present value and return on capital employed,
and of the possible reasons why these arise. papers at this level and means that candidates as well as a discussion of the strengths and
Candidates will need to be able to will not need to spend time choosing which weaknesses of the internal rate of return
evaluate and apply both internal and external question to answer. An extra 15 minutes of method.
risk management (hedging) methods, using reading and preparation time is given at the
the methods identified in the syllabus. Note start of the exam. Conclusion
that evaluation of derivative-based hedging Each question will have both discussion In order to pass this paper, candidates
methods – such as those using futures, and calculation elements. The balance should:
options, and swaps – is not required. between discussion and calculation will be clearly understand the objectives of Paper
similar to the balance in the Pilot Paper. F9, as explained above, and in the Syllabus
Main capabilities The topic areas covered by each question and in the accompanying Study Guide
The main capabilities are described in the are not fixed and all areas of the syllabus read and study thoroughly a suitable
Syllabus. Candidates who successfully pass are examinable. financial management textbook
the Paper F9 exam will be able to: No sections of the syllabus should be read relevant articles in student
discuss the role and purpose of the neglected during study, since no one section is accountant
financial management function more important than another. practise exam-standard and exam-style
assess and discuss the impact of the Each exam paper will contain tables questions on a regular basis
economic environment on financial of discount factors and annuity factors, be able to communicate their
management together with a formulae sheet, as in the Pilot understanding clearly in an exam
discuss and apply working capital Paper. Candidates must ensure that they context.
management techniques are familiar with the formulae given in the
carry out effective investment appraisal formulae sheet. Antony Head is examiner for Paper F9

44 student accountant March 2007