ACCA AFM

• AFM Course notes
• Syllabus A: Role of The Senior Financial Adviser

  • Syllabus A1. The role and responsibility of senior financial executive/advisor
  • Syllabus A2. Financial strategy formulation
  • Syllabus A3. Corporate environmental, social, governance (ESG) and ethical issues
  • Syllabus A4. Management of international trade and finance
  • Syllabus A5. Strategic business and financial planning for multinationals
  • Syllabus A6. Dividend policy in multinationals and transfer pricing
• Syllabus E: Treasury And Advanced Risk Management Techniques


  • Syllabus E1. The role of the treasury function in multinationals
  • Syllabus E2. The use of financial derivatives to hedge against forex risk
  • Syllabus E3. The use of financial derivatives to hedge against interest rate risk
• Financial management


  Getting and using financial resources well to meet objectives
• Profit maximisation is often assumed, incorrectly, to be the main objective of a business
• Reasons why profit is not a sufficient objective

  • Investors care about the future
  • Investors care about the dividend
  • Investors care about financing plans
  • Investors care about risk management
• Shareholder wealth maximisation


  Total shareholder return (dividend yield + capital gain or the dividend per share plus capital gain divided by initial share price)
• Key decisions


  • Investment
  • Finance
  • Dividends
  • Risk management
• Investment


  Analysing projects or takeovers or working capital to ensure they are beneficial to the investor
• Finance


  Mainly focus on how much debt a firm is planning to use
• Factors affecting the appropriate level of gearing

  • Life cycle
  • Operating gearing
  • Stability of revenue
  • Security
• Dividends


  How returns should be given to shareholders
• Risk management


  Mainly involve management of exchange rate and interest rate risk and project management issues
• Key objectives of financial management


  • Create wealth for the business
  • Generate cash
  • Provide an adequate return on investment bearing in mind the risks that the business is taking and the resources invested
• 3 key elements to the process of financial management

  • Financial Planning
  • Financial Control
  • Financial Decision-making
• Financial Planning


  Ensuring enough funding is available at the right time to meet the needs of the business
• Financial Control


  Helping the business ensure it is meeting its objectives
• Financial control addresses questions

  • Are assets being used efficiently?
  • Are the businesses assets secure?
  • Do management act in the best interest of shareholders and in accordance with business rules?
• Key aspects of financial decision-making

  • Investment
  • Financing
  • Dividends
• Main roles and responsibilities of the financial manager

  • Investment selection and capital resource allocation
  • Raising finance and minimising the cost of capital
  • Distribution and retentions
  • Communication with stakeholders
  • Financial planning and control
  • Risk management
  • Efficient and effective use of resources
• Other considerations for investment selection and capital resource allocation

  • Ethical considerations
  • What method of investment appraisal should be used?
  • What our stakeholders will think of the investments effects on ROCE and EPS
• Considerations for raising finance and minimising the cost of capital


  • Are the current gearing levels minimising the cost of capital for the company?
  • What gearing level is required?
  • What sources of finance are available?
  • Tax implications
  • The risk appetite of investors and management
  • Restrictions such as debt covenants
  • Implications for key ratios
• Considerations for distribution and retention policy

  • Will our investments (funded by retained earnings) increase the share price and thus shareholder wealth?
  • Will paying high dividends mean we need alternative finance for capital expenditure or working capital requirements?
  • Will paying low dividends fail to give shareholders their required income levels
  • What are the investor preferences for cash dividends now or capital gains in future from enhanced share value?
• Communication with stakeholders


  • Shareholders
  • Suppliers and customers
  • Internal stakeholders
• Financial planning and control

  • Planning processes
  • Business plans
  • Budgets
  • Evaluating performance
• The management of risk

  • Risk appetite
  • How are risks identified, Analysed, Planned for and Monitored?
• Use of resources


  • Economic
  • Efficient
  • Effective
  • Transparent
• Accounting Ratios


  • Profitability Ratios
  • Efficiency Ratios
  • Liquidity & Gearing Ratios
  • Investor's Ratios
• Ratios aren't always comparable
• Factors affecting comparability


  • Different accounting policies
  • Different accounting dates
  • Different ratio definitions
  • Comparing to averages
  • Possible deliberate manipulation (creative accounting)
  • Different managerial policies
• Comparisons to make


  • Industry averages
  • Other businesses in the same business
  • With prior year information
• High Gearing


  The higher a company's gearing, the more the company is considered risky
• Best known examples of gearing ratios

  • debt-to-equity ratio (total debt / total equity)
  • interest cover (EBIT / total interest)
  • equity ratio (equity / assets)
  • debt ratio (total debt / total assets)
• Dangers associated with high gearing

  • Need to cover high fixed costs, may lead to financial distress
  • Increased risk of bankruptcy
  • Reduced financial flexibility
  • Increased cost of capital
  • Reduced dividend capacity
• Different companies offer customers different payment terms
• Ratios to compare with

  • Industry averages
  • Other businesses in the same business
  • Prior year information
• Syllabus A2b. Recommend the optimum capital mix and structure within a specified business context and capital asset structure
• Acceptable level of gearing

  Determined by comparison to companies in the same industry
• Company with high gearing


  • More vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are
  • A greater proportion of equity provides a cushion and is seen as a measure of financial strength
• Best known examples of gearing ratios

  • debt-to-equity ratio (total debt / total equity)
  • interest cover (EBIT / total interest)
  • equity ratio (equity / assets)
  • debt ratio (total debt / total assets)