ACCA APPROVED In addition to ACCA examining team reviewed material you get: • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book Study Text Paper F9 Financial Management This ACCA Study Text for Paper F9 Financial Management has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage Financial Management BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA F9 ACCA approved content provider A-PDF Text Replace DEMO: Purchase from www.A-PDF.com to remove the watermark CONTENT PROVIDER ACCA Approved Study Text BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia February 2016 £32.00 For exams in September 2016, December 2016, March 2017 and June 2017 Contact us Paper F9 Financial Management Valid for both paper and computer based exams For exams in September 2016, December 2016, March 2017 and June 2017 http://accountingpdf.com/ ACF9ST16 (RICOH).indd 1-3 05/02/2016 16:13 ACCA APPROVED CONTENT PROVIDER As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for exams on demand) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F5 Study Text) for your access code Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code you received when prompted You will only have to this once for each paper you are studying http://accountingpdf.com/ S T U D Y PAPER F9 FINANCIAL MANAGEMENT BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text, which has been reviewed by the ACCA examination team, we:  Highlight the most important elements in the syllabus and the key skills you need  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam  Emphasise key points in regular fast forward summaries  Test your knowledge in quick quizzes  Examine your understanding in our practice question bank  Reference all the important topics in our full index BPP's Practice & Revision Kit also supports this paper FOR EXAMS FROM IN SEPTEMBER 2016, DECEMBER 2016, MARCH 2017 AND JUNE 2017 http://accountingpdf.com/ T E X T A note about copyright First edition 2007 Ninth edition February 2016 Dear Customer ISBN 9781 4727 4426 (Previous ISBN 9781 4727 2678 0) What does the title © mean and why does it matter? e-ISBN 9781 4727 4668 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Your market-leading BPP books, course materials and elearning materials not write and update themselves People write them on their own behalf or as employees of an organisations that invests in this activity Copyright law protects their livelihoods It does so by creating rights over the use of the content Breach of copyright is a form of theft – as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media: www.bpp.com/learningmedia  Photocopying our materials is a breach of copyright  Scanning, ripcasting or conversion of our digital materials into different file formats, uploading them to facebook or e-mailing them to your friends is a breach of copyright Printed in the United Kingdom by RICOH UK Limited Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable Media Ltd, are printed on paper obtained from traceable sustainable sources All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd You can, of course, sell your books, in the form in which you have bought them – once you have finished with them (Is this fair to your fellow students? We update for a reason.) Please note the e-products are sold on a single user licence basis: we not supply 'unlock' codes to people who have bought them secondhand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can your really trust them? We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated © BPP Learning Media Ltd 2016 ii http://accountingpdf.com/ Contents Page Introduction Helping you to pass Studying F9 The exam paper and exam formulae Syllabus and study guide v vii ix xi Part A Financial management function Financial management and financial objectives Part B Financial management environment The economic environment for business Financial markets, money markets and institutions 37 57 Part C Working capital management Working capital Managing working capital Working capital finance 79 93 119 Part D Investment appraisal 10 11 Investment decisions Investment appraisal using DCF methods Allowing for inflation and taxation Project appraisal and risk Specific investment decisions 143 159 177 189 205 Part E Business finance 12 13 14 15 16 Sources of finance Dividend policy Gearing and capital structure The cost of capital Capital structure 225 259 269 291 317 Part F Business valuations 17 18 Business valuations Market efficiency 337 361 Part G Risk management 19 20 Foreign currency risk Interest rate risk 373 401 Appendix – Mathematical tables 415 Practice question bank Practice answer bank Index 419 455 507 Review form Contents http://accountingpdf.com/ iii iv Introduction http://accountingpdf.com/ Helping you to pass BPP Learning Media – ACCA Approved Content Provider As ACCA's Approved Content Provider, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the 'PER alert' feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your online My Experience record Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the Study Text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Developing exam awareness Our Study Texts are completely focused on helping you pass your exam Our advice on Studying F9 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the syllabus and study guide You can find the syllabus and study guide on pages xi–xxi of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction http://accountingpdf.com/ v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) vi Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Introduction http://accountingpdf.com/ Studying F9 This paper examines a wide range of financial management topics, many of which will be completely new to you You will need to be competent at a range of quite tricky calculations as well as being able to explain and discuss financial management techniques and issues The F9 examination team The ACCA examination team expects you to be able to perform and comment on calculations, exercise critical abilities, clearly demonstrate understanding of the syllabus and use question information Syllabus update The F9 syllabus has been updated for the September 2016 sitting onwards The syllabus changes are summarised below Summary of changes to F9 There have been no amendments to the F9 syllabus since the last 2015-2016 syllabus However, the format of the exam has changed See page ix Introduction http://accountingpdf.com/ vii What F9 is about The aim of this syllabus is to develop the knowledge and skills expected of a finance manager in relation to investment, financing and dividend policy decisions F9 is a middle level paper in the ACCA qualification structure There are some links to material you have covered in F2, particularly short-term decision-making techniques The paper with a direct link following F9 is P4 which thinks strategically and considers wider environmental factors F9 requires you to be able to apply techniques and think about their impact on the organisation What skills are required?   You are expected to have a core of management accounting knowledge from Paper F2 You will be required to carry out calculations, with clear workings and a logical structure  You will be required to interpret data  You will be required to explain management accounting techniques and discuss whether they are appropriate for a particular organisation You must be able to apply your skills in a practical context  How to improve your chances of passing  There is no choice in this paper; all questions have to be answered You must therefore study the entire syllabus; there are no shortcuts  The first section of the paper consists of 15 multiple choice questions, worth two marks each These will inevitably cover a wide range of the syllabus Practising questions under timed conditions is essential BPP's Practice & Revision Kit contains mark, 10 mark and 20 mark questions to help you practise this Questions in Sections B and C will be based on simple scenarios and answers to Section C questions must be focused and specific to the organisation        Answer plans in Section C will help you to focus on the requirements of the question and enable you to manage your time effectively Answer all parts of the questions in Section C Even if you cannot all of the calculation elements, you will still be able to gain marks in the discussion parts Make sure your answers focus on practical applications of management accounting, common sense is essential! Keep an eye out for articles, as the examination team will use the articles to communicate with students Read journals etc to pick up on ways in which real organisations apply management accounting and think about your own organisation if that is relevant Brought forward knowledge You will need to have a good working knowledge of certain management accounting techniques from F2 In particular, you will need to be familiar with the capital budgeting process, and be able to apply the concepts of interest and discounting This includes being able to calculate annuities and perpetuities, and to use the discount and annuity tables to calculate net present values This Study Text revises these topics and brought forward knowledge is identified If you struggle with the examples and questions used, you must go back and revisit your previous work The ACCA examination team will assume you know this material and it may form part of an exam question viii Introduction http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Notes http://accountingpdf.com/ Review Form – Paper F9 Financial Management (02/16) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: During the past six months you recall seeing/receiving any of the following? (Tick as many boxes as are relevant) How have you used this Study Text? (Tick one box only) Home study (book only) On a course: college Our advertisement in ACCA Student Accountant With 'correspondence' package Our advertisement in Pass Other Our advertisement in PQ Our brochure with a letter through the post Why did you decide to purchase this Study Text? (Tick one box only) Our website www.bpp.com Which (if any) aspects of our advertising you find useful? (Tick as many boxes as are relevant) Have used BPP Study Texts in the past Recommendation by friend/colleague Recommendation by a lecturer at college Prices and publication dates of new editions Saw information on BPP website Information on Study Text content Saw advertising Facility to order books off-the-page Other None of the above Which BPP products have you used? Study Text Passcards Kit i-Pass Other Your ratings, comments and suggestions would be appreciated on the following areas Very useful Useful Not useful Good Adequate Poor Yes No Introductory section Chapter introductions Key terms Quality of explanations Case studies and other examples Exam focus points Questions and answers in each chapter Fast forwards and chapter roundups Quick quizzes Question Bank Answer Bank Index Overall opinion of this Study Text Excellent Do you intend to continue using BPP products? On the reverse of this page is space for you to write your comments about our Study Text We welcome your feedback The author of this edition can be emailed at: accaqueries@bpp.com Please return this form to: Head of ACCA & FIA Programmes, BPP Learning Media Ltd, FREEPOST, London, W12 8AA http://accountingpdf.com/ TELL US WHAT YOU THINK Please note any further comments and suggestions/errors below For example, was the text accurate, readable, concise, user-friendly and comprehensive? http://accountingpdf.com/ ... shareholders 1: Financial management and financial objectives  Part A Financial management function http://accountingpdf.com/ The nature and purpose of financial management FAST FORWARD Financial management. .. level A Financial management function The nature and purpose of financial management (a) Explain the nature and purpose of financial management (b) Explain the relationship between financial management. .. v vii ix xi Part A Financial management function Financial management and financial objectives Part B Financial management environment The economic environment for business Financial markets,