How to pass Advanced Financial Management

The Advanced Financial Management (AFM) exam requires you to demonstrate key knowledge and skills and also the exercise of professional judgement.  You will have to evaluate information and make, or recommend, decisions. Some of the information you are given may be contradictory or incomplete – just as in real life.  This is where professional judgement comes in.

Candidates are expected to relate their answers to a) the scenario in the question and b) the current global economic climate, if applicable.  So make sure you keep up to date with world news, especially changes in the economic climate and developments in the business sector, such as real-world mergers and acquisitions.

In the FM exam you have covered areas such as investment appraisal, capital structure, the cost of capital and risk management.  All of these issues are important for AFM, but they will now be applied to more complex scenarios. Investment appraisal methods such as NPV and IRR are important, but AFM also brings in MIRR (modified IRR) and APV.  CAPM with geared betas and WACC are brought forward from FM, and you should now also be familiar with business valuation using PE methods and dividend growth models. All of this may be needed in considering mergers and acquisitions.  The AFM exam will also cover issues relating to multinational companies, such as the effect of transfer pricing where subsidiaries are in countries with different tax rates.

You should have a good understanding of the role of financial institutions and you should make sure you can use and apply the Black Scholes model.  This is a new topic at AFM and likely to be tested.

All questions in this exam are likely to draw on more than one area of the syllabus, so a good knowledge of all syllabus areas is important to secure a pass. Question spotting is not a good idea.

Question 1 in your exam is for 50 marks and carries four professional marks.  It is worth making the effort to get those professional marks, which means producing the answer in the specified format. If this is a report, you need the correct heading, saying who the report is to/from and giving a title, headings in the body of the report, a conclusion and your workings in an appendix.

The general advice for all questions is:

  • Manage your time.  You can see by how many marks are allocated to a sub-question how much time you should spend on it.  Stick to that, don’t go over it.

  • Read the question properly.  Make sure you are clear about exactly what you have to do.  Check to see that your answer has addressed all the points in the question.  All of the information is there for a reason, you should be able to use it all.  Identify the key issues and highlight them.

  • Think about the verb used in the question.  ‘Discuss’ means that you should be looking at both sides of an issue – the pros and the cons – and then arriving at a reasoned conclusion. It does not mean ‘describe’ or ‘explain’.  Or you may be asked to consider an issue from the viewpoint of a particular stakeholder – such as a shareholder.  Make sure you have done exactly that.

  • Plan your answer.  These questions require high-level skills, such as critical analysis and evaluation.  So you must begin by considering the points you want to make and the order in which you want to make them and how all the points in the question will be covered.  Look also at what can be inferred from the information in the question. 

  • Do not write irrelevant stuff.  You do not get marks for filling pages, or screens.  All you do is waste your own time, when you could be gaining marks elsewhere.  Do not repeat information in the question – there are no marks for that.  Do not repeat points you have already made – there are no marks for that.  Your job is to add value.  Every sentence should have something new to say.  And do not write long, rambling sentences.  Keep them short and succinct.  This will stop you wandering off the point.

  • Show all your workings.  This applies to all exams.  Then, if you make a mistake, you can still get credit for using the correct method.

  • Round your calculations.  Do this wherever possible.  This will give you smaller numbers to work with and make mistakes less likely.  It will also make life easier for the marker, who can then see what you were trying to do.

  • Make sure you are comfortable with the use of the exam platform.  There is plenty of help with this on the ACCA website.  Make full use of the ACCA practice platform.

Tips for using the spreadsheet

  • Use the spreadsheet for any signification calculations

  • Format as much as is needed for clarity – there are no extra marks for making it pretty

  • Practice using the spreadsheet, especially the functions, before the exam. SUM, NPV, IRR and MIRR are all essential to know.

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