F9, Financial Management (FM)
SPEAKERS NOTES: TEACHERS’ CONFERENCE
? Topics taken from the financial management section of the current Paper 2.4 (Financial
Management and Control) and selected areas from the current Paper 3.7 (Strategic Financial
Management) merge in the new syllabus Paper F9 Financial Management.
? Progress towards the introduction of Paper F9 will be supported by articles in student
? You should all be familiar with my question-writing style, since I have been examining Paper
2.4 since 2002.
? Note the Paper F9 Study Guide does not give outline study sessions like the current Paper 2.4
study guide, but the Paper F9 Study Guide is very clear as to content and depth of study
? The examination paper contains four compulsory questions, so there is no choice about which
questions to answer. Each question is worth equal marks (25 marks), and will have both
discussion and calculation elements. There will no longer be an essay-type question as in the
current Paper 2.4 examination.
? There will be 15 minutes reading time at the start of the examination.
? Note that Paper F9 uses international terminology and financial statement formats.
Slides 5 and 6
? The formulae sheet has been extended and has a degree of commonality with the formulae
sheet for Paper P4. Formulae included will be the EOQ model, the Miller-Orr model, the capital
asset pricing model, weighted average cost of capital, the asset beta formula, the growth
model (used for dividends and other income streams), Gordon’s growth approximation, the
Fisher formula, purchasing power parity and interest rate parity.
? The objective of the paper is simply put: ‘To equip candidates with the skills that would be
expected from a financial manager responsible for the finance function of a business’. There
is a direct link upwards to the optional Paper P4 ‘Advanced Financial Management’.
? There is a link between Paper F9, in terms of past questions and selected areas of content, and
Papers 2.4 and 3.7, and before that Papers 8 and 13, so teaching materials and practice
questions prepared for these areas of content remain useful.
? Section A ‘Financial Management Function’ is broadly similar to Section 1 ‘Financial
Management Objectives’ in the current 2.4 syllabus. However, there is now an explicit
reference to agency theory, as well as a requirement to describe and apply ways of measuring
achievement of corporate objectives, including ratio analysis and changes in dividends and
share prices. There is also an explicit reference to managerial reward schemes and regulatory
requirements such as corporate governance codes of best practice.
? Section B ‘Financial Management Environment’ is very similar to Section 2 ‘Financial
Management Environment’ in the current 2.4 syllabus, and covers macroeconomic policies,
their impact on business decisions, competition policy, government aid, green policies, and
corporate governance. Also covered are the nature, role and functions of financial markets,
financial intermediaries, financial securities and the risk-return trade-off.
? Section C ‘Working Capital Management’ is very similar to Section 3 ‘Management of
Working Capital’ in the current 2.4 syllabus. In fact, it is hard to point to any change at all in
terms of content. The change to international terminology has meant a shift to inventories,
accounts receivable, accounts payable, etc., which also affects the names of ratios, e.g.
inventory days ratio, average collection period and average payable period.
? Section D ‘Investment Appraisal’ is very similar to Section 5 ‘Capital Investment
Appraisal’ in the current 2.4 syllabus and should be familiar to all tuition providers already.
There are explicit references to the role of investment appraisal in the capital budgeting
process, and to the need to be able to discuss the stages of the capital budgeting process in
relation to corporate strategy, which helps to place investment appraisal into context and
should be familiar to those who recall Paper 8.
? Section E ‘Business Finance’ is very similar to Section 4 ‘Sources of Finance’ in the current 2.4 syllabus, although there is now an explicit reference to sources of and raising short-term finance, i.e. overdraft, short-term loan, trade credit and lease finance. This section also covers long-term finance, internal sources of finance, dividend policy, gearing and capital structure considerations, and finance for SMEs.
? Section F ‘Cost of Capital’ is new compared to Paper 2.4, but should be a familiar area from
the current Paper 3.7 syllabus. This section covers the following areas:
- the relative costs of different sources of finance (risk-return relationship, creditor hierarchy). - estimating the cost of equity using the dividend growth model and the capital asset pricing model, and
understanding these models and their limitations.
- estimating the cost of debt and other capital instruments.
- estimating the weighted average cost of capital (WACC) using both book values and market values, and
distinguishing between average and marginal costs of capital.
- capital structure theories and considerations (the traditional view, Miller and Modigliani, market
imperfections, pecking order theory).
- the impact of cost of capital on investments, including using the CAPM to calculate a project-specific
cost of capital, and the relative merits of WACC and the CAPM in finding a project-specific cost of capital.
Slides 16 and 17
? Section G ‘Business Valuations’ is new compared to Paper 2.4, but should be a familiar topic
from the current Paper 3.7 syllabus. This section covers the following areas:
- nature and purpose of valuation of business and financial assets, including information requirements for
- models for the valuation of shares, including the dividend valuation model, market capitalisation, asset-
based and income-based valuation methods.
- valuation of debt and other financial assets (including redeemable debt, preference shares and convertible
- efficient market hypothesis, practical considerations in share valuation, and investor
Slides 18 and 19
? Section H ‘Risk Management’ is new compared to Paper 2.4, but should be familiar from the
current Paper 3.7 syllabus. This section covers the following areas:
- nature and types of risk and approaches to risk management, covering translation,
economic risk (foreign currency risk), and gap exposure and basis risk (interest rate risk).
- causes of exchange rate differences and interest rate fluctuations.
- hedging techniques for foreign currency risk and interest rate risk. Students should be able to
apply non-derivative hedging methods for both foreign currency risk and interest rate risk.
based hedging methods (e.g. futures, options, swaps) are covered at an introductory level
detailed evaluations will not be required.
? Both BPP and Foulks Lynch workbooks will be available prior to teaching, and are reviewed by
the examiner as to content and depth of coverage. The F9 Study Guide recommends some
useful textbooks: Watson and Head (Corporate Finance), Van Horne and Wachowitz (Financial
Management), Griffiths and Wall (Economics).
? The Pilot Paper can be used as a guide to question style and relative balance of calculation and
discussion. I recommend that students practice relevant questions from past Paper 2.4 and 3.7
exams, but teachers, I am sure, will select their own material from their existing resources. ? Please send suggestions for articles you would like to see in student accountant and any
queries you have about the new F9 syllabus to ACCA for forwarding to me. I will endeavour to
write any articles needed to increase the understanding of teachers and students regarding the
new F9 syllabus.