ACCA Pakistan Financial Management (FM) Syllabus

Financial Management (FM) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Management (FM) in ACCA Pakistan, not a summary of it.

1. 1

   Financial Management Function

   3 topics

   • The Nature and Purpose of Financial Management
   • Financial Objectives and Stakeholders
   • Financial and Other Objectives in Not-for-Profit
2. 2

   Working Capital Management

   4 topics

   • The Nature of Working Capital
   • Managing Inventories, Receivables and Payables
   • Cash Management
   • Working Capital Funding Strategies
3. 3

   Investment Appraisal

   4 topics

   • Payback and Accounting Rate of Return
   • Discounted Cash Flow
   • Allowing for Inflation and Tax
   • Risk and Uncertainty in Investment
4. 4

   Business Finance

   3 topics

   • Sources of Finance
   • Cost of Capital
   • Capital Structure Theories
5. 5

   Business Valuations

   4 topics

   • Asset-Based Valuation
   • Income-Based Valuation
   • Cash Flow-Based Valuation
   • Market Efficiency
6. 6

   Risk Management

   3 topics

   • Foreign Currency Risk
   • Interest Rate Risk
   • Hedging Techniques

Financial Management (FM) flashcards for ACCA Pakistan

24 of 51 cards from the Financial Management (FM) deck — real questions with worked answers.

1. What is the primary financial objective of a profit-making company in financial management?

   To maximise shareholder wealth, usually measured by maximising the value of the company's shares plus dividends paid.

2. What are the three key decisions made by financial managers?

   The investment decision (which projects/assets to invest in), the financing decision (how to raise funds), and the dividend decision (how much profit to distribute vs retain).

3. What is the agency problem in financial management?

   A conflict of interest where managers (agents) may pursue their own goals rather than maximising the wealth of shareholders (principals) who own the company.

4. Name three ways the agency problem between managers and shareholders can be reduced.

   Performance-related pay, share options/schemes, and corporate governance regulation. (Also: managerial labour market and threat of takeover.)

5. What is the difference between a financial objective and a non-financial objective?

   A financial objective is expressed in monetary/quantitative terms (e.g. profit, EPS, shareholder wealth), while a non-financial objective relates to other goals such as employee welfare, customer satisfaction, or environmental responsibility.

6. Who are the main stakeholder groups of a company?

   Shareholders, debt holders/lenders, employees, customers, suppliers, government, and the community/society.

7. In a not-for-profit organisation, what replaces shareholder wealth maximisation as the key objective?

   Value for money (VFM) - achieving the best combination of economy, efficiency and effectiveness in using resources to meet the organisation's objectives.

8. Define the '3 Es' of value for money.

   Economy (minimising input costs), Efficiency (maximising output per unit of input), and Effectiveness (achieving the organisation's stated objectives/outcomes).

9. What is working capital?

   The capital available for day-to-day operations, equal to current assets minus current liabilities. It comprises inventories, receivables, cash and payables.

10. What is the working capital cycle (cash operating cycle)?

    The length of time between paying for goods/raw materials and receiving cash from the sale of finished goods. Cycle = inventory days + receivables days - payables days.

11. How is the inventory holding period (inventory days) calculated?

    (Average inventory / Cost of sales) x 365 days. (For raw materials, use raw material inventory and raw material purchases.)

12. How are receivables collection days calculated?

    (Trade receivables / Credit sales) x 365 days.

13. How are payables payment days calculated?

    (Trade payables / Credit purchases or cost of sales) x 365 days.

14. What does it mean to 'overtrade' (undercapitalisation)?

    When a business expands sales/operations too rapidly without sufficient long-term capital, straining working capital - rising inventory and receivables financed by overdraft and trade credit, risking a liquidity crisis.

15. State the Economic Order Quantity (EOQ) formula.

    EOQ = square root of (2 x Co x D / Ch), where Co = cost per order, D = annual demand, and Ch = holding cost per unit per year.

16. What is the purpose of the EOQ model?

    To determine the order quantity that minimises total inventory costs by balancing ordering costs against holding costs.

17. What is the formula for the cost of an early settlement (cash) discount as an annual percentage?

    Annualised cost = [1 + d/(100-d)]^(365/t) - 1, where d = discount percentage and t = the number of days earlier payment is made.

18. What factors should a company assess before granting credit to a new customer (credit analysis)?

    Creditworthiness using sources such as bank references, trade references, credit agency reports, published financial statements, and the company's own past trading experience.

19. What is factoring of receivables?

    A service where a factor manages a company's sales ledger, collects debts, and advances cash (typically up to ~80%) against invoices. It may be with recourse or without recourse (non-recourse provides bad debt protection).

20. What is invoice discounting?

    A method of raising finance where a company borrows against the value of its outstanding invoices (receivables) while retaining control of its own sales ledger and debt collection; it is usually confidential.

21. What are the three motives for holding cash identified by Keynes?

    The transactions motive (to meet day-to-day payments), the precautionary motive (a buffer for unexpected needs), and the speculative motive (to take advantage of opportunities).

22. What does the Baumol cash management model determine, and what is its formula?

    It determines the optimal amount of cash to transfer from investments each time cash is needed. Q = square root of (2 x Co x D / Ci), where Co = cost per transaction, D = annual cash demand, Ci = interest cost of holding cash.

23. What does the Miller-Orr cash management model do?

    It sets an upper limit, lower limit, and return point for a cash balance that fluctuates randomly. Spread = 3 x [ (3/4 x transaction cost x variance of cash flows) / interest rate ]^(1/3); Return point = lower limit + spread/3.

24. Distinguish between permanent and fluctuating (temporary) current assets.

    Permanent current assets are the minimum core level of current assets needed at all times; fluctuating current assets vary with seasonal or cyclical demand above that base level.

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