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                Financial Strategy
                The examiner for F3 offers her guide to the most significant differences
                between the new paper and its predecessor under the old syllabus, P9.
                The introduction of CIMA’s new syllabus          weighting to both “Business valuation and
                has brought some important changes to the        acquisitions” and “Investment decisions
                way the Financial Strategy paper is examined.    and project control”. The new upper limit of
                F3 differs from the old P9 exam in key aspects   45 marks in section C gives the examiner
                including the structure of the syllabus, the     greater flexibility in setting questions on this
                format of the paper and the contents of the      area of the syllabus. Coverage of, for
                formula sheet provided. The new paper also       example, an acquisition is no longer
                requires a more rigorous approach to             restricted to 25 marks, so a longer question
                calculations with respect to working out tax     with a broader scope can now be included
                relief on finance lease payments and             on the subject.
                adjusting for partial years when discounting        The study weighting for the new section
                or applying compound growth.                     A has been increased slightly. The weighting
                                                                 of section B remains unaltered, but the
                Changes to the syllabus                          content has been expanded slightly to
                The main change concerns structure rather        include the financing of investments.
                than content. In the old P9 paper there were
                four main syllabus areas:                        Changes to the exam paper
                A Formulation of financial strategy (20 per      The most significant change is the addition
                    cent weighting).                             of pre-seen material as preparation for
                B Financial management (30 per cent).            question 1 – the case study question.
                C Business valuation and acquisitions            The strategic level pre-seen material is
                    (25 per cent).                               designed to allow you to familiarise yourself
                D Investment decisions and project control       with the organisation(s) and industry in
                    (25 per cent).                               question. It will be the basis for section A
                    By contrast, F3 has only three main          of all three strategic level papers. It will also
                syllabus areas:                                  help you to prepare for the process you’ll
                A Formulation of financial strategy (25 per      have to go through when taking the final
                    cent weighting).                             T4 part B Case Study exam.
                B Financing decisions (30 per cent).                  When preparing for the F3 exam, you
                C Investment decisions and project control       need to acquaint yourself with the facts
                    (45 per cent).                               contained in the pre-seen material. But,
                    The main difference is the aggregation       although it is important to be familiar with
                of P9’s old sections C and D into a single       them, you should also note that the exam
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                new section C in F3. This has important          itself is unlikely to require a detailed analysis
                implications for the content of the exam,        of the pre-seen data.
                because the examiner is no longer                     An example of how the pre-seen and
                constrained by the need to give equal            unseen materials might be used in the F3
                                                                 exam is as follows. If, for instance, you are

                          The new upper limit of                 required to perform a balance sheet analysis,
                                                                 it’s likely that an additional “forecast”

                          45 marks in section C                  balance sheet for a subsequent year will be
                                                                 provided as part of the unseen material.

                          gives the examiner greater             Similarly, any modelling you are required to
                                                                 do in the exam may refer to base data

                flexibility in setting questions                 provided in the pre-seen material, but you
                                                                 can expect the modelling process itself to

                on this area of the syllabus                     be based predominantly on new information
                                                                 supplied in the unseen material.

44              financial management
                                                                                                                           PAPER F3

    There will be useful “hooks” in the             For example, A$/B$ 3.4000 should be                arising on finance leases. you’ll need to be
pre-seen material that will indicate to tutors      interpreted as A$1 = B$3.4000. This means          able to calculate the finance charge element
and students some of the main areas of the          that the order in which currencies are listed in   within the finance lease payment and restrict
syllabus that are likely to appear in one or        F3 is now opposite to the one used in P9.          corporate tax relief to that element. Such a
more strategic papers across two diets.                 In F3 and other strategic level papers,        method, which will be familiar from your F1
                                                    CImA will also gradually introduce                 studies, ensures a consistency of approach
Changes to the formula sheet                        internationally recognised currency codes for      across the financial pillar.
Several minor alterations have been made to         major national currencies. you will not need           either the sum-of-digits method or the
provide more consistency in the sheet’s             to memorise the currency codes themselves,         actuarial method is acceptable. Both
presentation. One notable change concerns           because questions will state the relevant          approaches are set out in the Official CIMA
how exchange rates are presented. They will         countries and their currency codes.                Learning System and in question 2 of
now follow the internationally accepted                                                                November 2009’s specimen F3 paper. Note
standard format, with the first named               Changes to calculations                            that, if you do choose the actuarial method,
currency as the base currency and the               F3 candidates are expected to take a more          you will be expected to calculate the implied
second currency as the variable currency.           accurate approach to calculating cash flows        interest rate. This is a change from F1, where
                                                                                                       a figure for the rate is provided. Also note that
                                                                                                       lease payments may be payable either in
  F3 exam preparation tips                                                                             arrears or in advance, according to the
                                                                                                       scenario provided, and a deposit may also
  n It’s clearly sensible to familiarise yourself     for revision may show the exchange rate          sometimes be payable.
    with the syllabus areas covered by the            the other way round.                                 A second change in F3 calculations is
    pre-seen case material.                         n make sure that you feel comfortable              that candidates may sometimes be expected
  n When you enter the exam hall you should           with the finance lease tax calculations          to work with partial years when adjusting
    be aware of the information and types of          shown in the specimen paper. Although            exchange rate data. For example, an
    financial data available for use in               the actuarial method is probably more            exchange rate may be provided that is
    answering question 1 so that you don’t            complex to understand and may not                relevant to the exam date of, say, may 20,
    have to waste time re-reading the pre-            have been the method taught in F1, it’s          but investment appraisal may be required
    seen material or hunting for information          probably quicker and easier to use than          based on whole calendar years starting on
    that you know is already provided.                the sum-of-digits method. But you do             January 1 of the following year. In such a
  n Remember that any financial analysis              need to ensure that you are confident in         case, you’d be expected to estimate the likely
    required in question 1 is likely to build         calculating the implied interest rate,           appreciation or depreciation of the local
    on new data provided in the unseen                because this will not necessarily be             currency in the period from may 20 to
    material, so the extensive analysis and           provided. The sum-of-digits method is            January 1. A full worked example of such a
    memorising of financial ratios etc is             also acceptable and you won’t lose any           calculation is provided in question 1 of the
    unlikely to be helpful.                           marks if you use this instead.                   November 2009 specimen paper.
  n Focus primarily on the requirements             n Note that in F3 you might find that a 50-            Where the growth in a figure of y is
    laid out in the question and resist the           mark question concerning acquisition or          required at a (compounded) annual rate of
    temptation to answer the question that            project decisions may have more than             r per cent for t days, the calculation to use is
    you were expecting to see. It is                  25 marks devoted to that syllabus area.          y x (1 + r)t/365. Similarly, where y is to be
    important to enter the exam hall with             The integration of P9’s syllabus sections        discounted by t days at the same annual rate,
    an open mind, ready to respond to                 C and D means that there is now an               the calculation to use is y ÷ (1+r)t/365.
    new information.                                  upper limit of 45 marks on coverage of
  n Check that you understand the changes             acquisition or project decisions. By              F3 further reading
    to the way that exchange rates are                raising this limit from the old 25-mark
    presented. you can use the example in             ceiling, the examiner is now able to set         J Ogilvie, The Official CIMA
    the specimen paper as a guide.                    more extensive questions in this area            Learning System – Financial
    Remember that old exam papers used                than had been possible in P9.                    Strategy, CIMA Publishing, 2009.

                                                                                                                                      financial management   45

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