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ACCA Paper F9: Notes
ACCA Paper F9: Notes
Notes
ACCA Paper F9
Financial Management
For exams in December 2009
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ExPress Notes
ACCA F9 Financial Management
Contents
About ExPress Notes 3
3. Investment Appraisal 18
4. Business Finance 36
5. Cost of Capital 42
6. Business Valuations 50
7. Risk Management 55
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ExPress Notes
ACCA F9 Financial Management
START
About ExPress Notes
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ExPress Notes
ACCA F9 Financial Management
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ExPress Notes
ACCA F9 Financial Management
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ExPress Notes
ACCA F9 Financial Management
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ExPress Notes
ACCA F9 Financial Management
Chapter 1
Financial accounting is concerned with maintaining the records of the transactions of the
firm and preparing financial statements for the benefit of shareholders (and other external
audiences) in conformity with established accounting standards.
KEY KNOWLEDGE
Financial Objectives and the Relationship with Corporate
Strategy
In pursuing its financial objectives, the firm must ensure that those objectives are congruent
– i.e. consistent – with its overall corporate strategy.
KEY KNOWLEDGE
Stakeholders and Impact on Corporate Objectives
Stakeholder groups
Lenders: Important if the business relies heavily on providers of loan capital (banks,
bondholders);
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ExPress Notes
ACCA F9 Financial Management
Directors: The executive directors or senior management of the business is central since
they have “hands-on” power and can serve their own interests (giving rise to agency
risk);
Government: They have two major interests: (a) they receive revenue via taxes and (b)
benefit indirectly when firms create employment. Environmental and other regulatory
concerns are also within the scope of the government’s interest;
Public: The general public, its opinions and ability to exert pressure through lobby
groups are all relevant factor for businesses that pollute, are involved in nuclear power,
or carry out other activities that may be controversial (e.g. abortion clinics).
Management must examine the degrees of stakeholder influence and actively manage the
relationship with relevant stakeholders.
Agency theory
Agency theory addresses the risk that management will not act in the best interest of the
shareholders, but will make decisions that will serve its own interests.
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ExPress Notes
ACCA F9 Financial Management
Influencing managerial behavior
KEY KNOWLEDGE
Financial and Other Objectives in Non‐for‐Profit
Organisations
Profit and Not-for-profit organisations
KEY KNOWLEDGE
Financial Management Environment
1. The economic environment for business
Financial markets and institutions have achieved such a degree of global integration that
shocks in one part – as shown with the onset of the financial crisis in 2008 – can have
systematic implications across all markets.
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ExPress Notes
ACCA F9 Financial Management
Chapter 2
This is an accounting definition. The discussion and analysis of working capital management
focuses on the “operating” elements of current assets and liabilities:
Cash
Inventory
Receivables
Payables
These elements are linked through the Cash conversion cycle, also known as the Cash
Operating Cycle.
Raw materials
received
Receipt of
cash
Payment to supplier
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ExPress Notes
ACCA F9 Financial Management
The above diagram shows the operating cash flows for a typical manufacturing company
converting raw materials into finished goods for sale. The company needs its own cash to
pay the supplier and can only recover this from the sale of the finished goods.
The cash invested in inventories and receivables represents a cost to the company. This is
most directly obvious in opportunity cost terms: the cash could be earning interest, reducing
interest-bearing debt, or ultimately find its way into shareholders’ pockets as a dividend
payment.
The presence of payables indicates that cash payments (outflows) are delayed; this is
beneficial to the company as long as it is not overdue on its payments, as late payment
could lead to penalties or damage to the company’s reputation (creditworthiness).
Managing the individual parts of working capital means managing the “whole picture” in an
optimal way; doing this well can give a firm a significant competitive advantage over its
competitors.
Ratio Analysis
Liquidity ratios
The relationship between current assets and current liabilities is used as a measure of
liquidity in the firm:
Turnover ratios
Inventory x 365
COGS
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ExPress Notes
ACCA F9 Financial Management
(3) Trade creditors (payables)
Within a company, there is a natural temptation to accumulate buffer stocks (raw materials
and semi-finished goods) so that production is never interrupted.
Similarly, in order to avoid stock-outs, sales managers will insist on maintaining a plentiful
level of finished goods. All of this costs money.
The EOQ is a method which seeks to minimize the costs associated with holding inventory.
Q = order quantity
Recognizing that:
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