ACCA | Financial Management (FM) | Syllabus andstudy guide

September 2025 to June 2026

The syllabus

A Financial management function

1. The nature and purpose of financial
management
2. Financial objectives and relationship with
corporate strategy
3. Stakeholders and impact on corporate
objectives
4. Financial and other objectives in not-forprofit organisations

B Financial management environment

1. The economic environment for business
2. The nature and role of financial markets
and institutions
3. The nature and role of money markets

C Working capital management

1. The nature, elements and importance of
working capital
2. Management of inventories, accounts
receivable, accounts payable and cash
3. Determining working capital needs and
funding strategies

D Investment appraisal

1. Investment appraisal techniques
2. Allowing for inflation and taxation in
DCF
3. Adjusting for risk and uncertainty in
investment appraisal
4. Specific investment decisions (lease or
buy, asset replacement, capital rationing)

E Business finance

1. Sources of, and raising, business finance
2. Estimating the cost of capital
3. Sources of finance and their relative costs
4. Capital structure theories and practical
considerations
5. Finance for small- and medium-sized
entities (SMEs)

F Business valuations

1. Nature and purpose of the valuation of
business and financial assets
2. Models for the valuation of shares
3. The valuation of debt and other financial
assets
4. Efficient market hypothesis (EMH) and
practical considerations in the valuation
of shares

G Risk management

1. The nature and types of risk and
approaches to risk management
2. Causes of exchange rate differences and
interest rate fluctuations
3. Hedging techniques for foreign currency
risk
4. Hedging techniques for interest rate risk

H Employability and technology skills

3. Navigate windows and computer screens
to create and amend responses to exam
requirements, using the appropriate tools
4. Present data and information effectively,
using the appropriate tools

Detailed study guide

A Financial management
function

1. The nature and purpose of financial
management
a) Explain the nature and purpose of financial management.
b) Explain the relationship between financial management and financial and management accounting

2. Financial objectives and the relationship with corporate strategy
a) Discuss the relationship between financial objectives, corporate objectives and corporate strategy.
b) Identify and describe a variety of financial
objectives, including:

i) shareholder wealth maximisation
ii) profit maximisation
iii) earnings per share growth

3. Stakeholders and impact on corporate
objectives
a) Identify the range of stakeholders and their objectives.
b) Discuss the possible conflict between stakeholder objectives.
c) Discuss the role of management in meeting stakeholder objectives, including the application of agency theory.
d) Describe and apply ways of measuring achievement of corporate objectives including:

i) ratio analysis, using appropriate ratios such as return on capital employed, return on equity, earnings per share and dividend per share
ii) changes in dividends and share prices as part of total shareholder return

e) Explain ways to encourage the achievement of stakeholder objectives, including:

i) managerial reward schemes such as share options and performance-related pay.
ii) regulatory requirements such as corporate governance codes of best practice and stock exchange listing regulations

4. Financial and other objectives in notfor-profit organisations
a) Discuss the impact of not-for-profit status on financial and other objectives.
b) Discuss the nature and importance of Value for Money as an objective in not-forprofit organisations.
c) Discuss ways of measuring the achievement of objectives in not-for-profit organisations

B Financial management
environment

1. The economic environment for business
a) Identify and explain the main macroeconomic policy targets.
b) Define and discuss the role of fiscal, monetary, interest rate and exchange rate policies in achieving macroeconomic policy targets.
c) Explain how government economic policy interacts with planning and decisionmaking in business.
d) Explain the need for, and the interaction with, planning and decision-making in business of:

i) competition policy
ii) government assistance for business
iii) green policies and sustainability
iv) corporate governance regulation

2. The nature and role of financial markets
and institutions

a) Identify the nature and role of money and capital markets, both nationally and internationally.
b) Explain the role of financial intermediaries.
c) Explain the functions of a stock market and a corporate bond market.
d) Explain the nature and features of different securities in relation to the risk/return trade-off.
e) Explain the impact of Fintech in changing the nature and role of financial markets and institutions

3. The nature and role of money markets

a) Describe the role of the money markets in:

i) providing short-term liquidity to the private sector and the public sector
ii) providing short-term trade finance
iii) allowing an organisation to manage its exposure to foreign currency risk and interest rate risk

b) Explain the role of banks and other financial institutions in the operation of the money markets

c) Explain and apply the characteristics and role of the principal money market instruments:
i) interest-bearing instruments
ii) discount instruments
iii) derivative products

C Working capital management

1. The nature, elements and importance of
working capital

a) Describe the nature of working capital and identify its elements.
b) Identify the objectives of working capital management in terms of liquidity and profitability, and discuss the conflict between them.
c) Discuss the central role of working capital management in financial management

2. Management of inventories, accounts
receivable, accounts payable and cash

a) Explain the cash operating cycle and the role of accounts payable and accounts receivable

b) Explain and apply relevant accounting ratios, including:

i) current ratio and quick ratio
ii) inventory turnover ratio, average collection period and average payable period
iii) sales revenue/net working capital ratio

c) Discuss, apply and evaluate the use of relevant techniques in managing inventory, including the Economic Order Quantity model and Just-in-Time techniques

d) Discuss, apply and evaluate the use of relevant techniques in managing accounts receivable, including:

i) assessing creditworthiness
ii) managing accounts receivable
iii) collecting amounts owing
iv) offering early settlement discounts
v) using factoring and invoice discounting
vi) managing foreign accounts receivable.

e) Discuss and apply the use of relevant techniques in managing accounts payable, including:

i) using trade credit effectively
ii) evaluating the benefits of early settlement and bulk purchase discounts
iii) managing foreign accounts payable

f) Explain the various reasons for holding cash, and discuss and apply the use of relevant techniques in managing cash, including:
i) preparing cash flow forecasts to determine future cash flows and cash balances
ii) assessing the benefits of centralised treasury management and cash control
iii) cash management models, such as the Baumol model and the MillerOrr model
iv) investing short-term

3. Determining working capital needs and funding strategies

a) Calculate the level of working capital investment in current assets and discuss the key factors determining this level, including:

i) the length of the working capital cycle and terms of trade
ii) an organisation’s policy on the level of investment in current assets
iii) the industry in which the organisation operates

b) Evaluate and discuss the key factors in determining working capital funding strategies, including:

i) the distinction between permanent and fluctuating current assets
ii) the relative cost and risk of short-term and long-term finance
iii) the matching principle

iv) the relative costs and benefits of aggressive, conservative and matching funding policies
v) management attitudes to risk, previous funding decisions and organisation size

D Investment appraisal

1. Investment appraisal techniques

a) Identify and calculate relevant cash flows for investment projects.
b) Calculate payback period and discuss its usefulness as an investment appraisal method.
c) Calculate discounted payback and discuss its usefulness as an investment appraisal method.
d) Calculate return on capital employed (accounting rate of return) and discuss its usefulness as an investment appraisal method.
e) Calculate net present value and discuss its usefulness as an investment appraisal method.
f) Calculate internal rate of return and discuss its usefulness as an investment appraisal method.
g) Discuss the superiority of discounted cash flow (DCF) methods over non-DCF methods.
h) Discuss the relative merits of NPV and IRR

2. Allowing for inflation and taxation in DCF

a) Apply and discuss the real-terms and nominal-terms approaches to investment appraisal.
b) Calculate the taxation effects of relevant cash flows, including the tax benefits of tax-allowable
depreciation and the tax liabilities of taxable profit.

c) Calculate and apply before- and after-tax
discount rates

3. Adjusting for risk and uncertainty
in investment appraisal
a) Describe and discuss the difference between risk and uncertainty in relation to probabilities and increasing project life.
b) Apply sensitivity analysis to investment projects and discuss the usefulness of sensitivity analysis in assisting investment decisions.
c) Apply probability analysis to investment projects and discuss the usefulness of probability analysis in assisting investment decisions.
d) Apply and discuss other techniques of adjusting for risk and uncertainty in investment appraisal, including:

i) simulation
ii) adjusted payback
iii) risk-adjusted discount rates

4. Specific investment decisions (Lease
or buy, asset replacement, capital
rationing)

a) Evaluate leasing and borrowing to buy using the before- and after-tax costs of debt.
b) Evaluate asset replacement decisions using equivalent annual cost and equivalent annual benefit.
c) Evaluate investment decisions under single-period capital rationing, including:

i) the calculation of profitability indexes for divisible investment projects

ii) the calculation of the NPV of combinations of non-divisible investment projects
iii) a discussion of the reasons for capital rationing

E Business finance

1. Sources of, and raising, business finance

a) Identify and discuss the range of shortterm sources of finance available to businesses, including:

i) overdraft
ii) short-term loan
iii) trade credit
iv) lease finance

b) Identify and discuss the range of longterm sources of finance available to businesses, including:

i) equity finance
ii) debt finance
iii) lease finance
iv) venture capital

c) Identify and discuss methods of raising equity finance, including:

i) rights issue
ii) placing
iii) public offer
iv) stock exchange listing

d) Identify and discuss methods of raising short- and long-term Islamic finance, including:

i) major differences between Islamic finance and the other forms of business finance
ii) the concept of riba (interest) and how returns are made by Islamic financial securities.
iii) Islamic financial instruments available to businesses including:
i) murabaha (trade credit)
ii) ijara (lease finance)
iii) mudaraba (equity finance)

iv) sukuk (debt finance)
v) musharaka (venture capital).
(note: calculations are not required)

e) Identify and discuss internal sources of
finance, including:

i) retained earnings
ii) increasing working capital management efficiency
iii) the relationship between dividend policy and the financing decision
iv) the theoretical approaches to, and the practical influences on, the dividend decision, including legal constraints, liquidity, shareholder expectations and alternatives to cash dividends

2. Estimating the cost of capital
a) Estimate the cost of equity including:

i) application of the dividend growth model, its assumptions, advantages and disadvantages.
ii) explanation and discussion of systematic and unsystematic risk
iii) relationship between portfolio theory and the capital asset pricing model (CAPM)
iv) application of the CAPM, its assumptions, advantages and disadvantages

b) Estimating the cost of debt:

i) irredeemable debt
ii) redeemable debt
iii) convertible debt
iv) preference shares
v) bank debt

c) Estimating the overall cost of capital including:
i) distinguishing between average and marginal cost of capital
ii) calculating the weighted average cost of capital (WACC) using book value and market value weightings

3. Sources of finance and their relative
costs
a) Describe the relative risk-return relationship and the relative costs of equity and debt.
b) Describe the creditor hierarchy and its connection with the relative costs of sources of finance.
c) Identify and discuss the problem of high levels of gearing.
d) Assess the impact of sources of finance on financial position, financial risk and shareholder wealth using appropriate measures, including:
i) ratio analysis using statement of financial position gearing, operational and financial gearing, interest coverage ratio and other relevant ratios

ii) cash flow forecasting
iii) leasing or borrowing to buy

e) Impact of cost of capital on investments including:

i) the relationship between company value and cost of capital.
ii) the circumstances under which WACC can be used in investment appraisal
iii) the advantages of the CAPM over WACC in determining a project-specific cost of capital.
iv) the application of the CAPM in calculating a project-specific discount rate

4. Capital structure theories and practical
considerations
a) Describe the traditional view of capital
structure and its assumptions.
b) Describe the views of Miller and Modigliani on capital structure, both without and with corporate taxation, and their assumptions.

c) Identify a range of capital market imperfections and describe their impact on the views of Miller and Modigliani on capital structure.
d) Explain the relevance of pecking order theory to the selection of sources of finance

5. Finance for small and medium sized
entities (SMEs)
a) Describe the financing needs of small businesses.
b) Describe the nature of the financing problem for small businesses in terms of the funding gap, the maturity gap and inadequate security.
c) Explain measures that may be taken to ease the financing problems of SMEs, including the responses of government departments and financial institutions.
d) Identify and evaluate the financial impact of sources of finance for SMEs, including sources already referred to in syllabus section E1 and also

i) Business angel financing
ii) Government assistance
iii) Supply chain financing
iv) Crowdfunding / peer-to-peer funding

F Business valuations

1. Nature and purpose of the valuation of
business and financial assets
a) Identify and discuss reasons for valuing businesses and financial assets.
b) Identify information requirements for valuation and discuss the limitations of different types of information

2. Models for the valuation of shares
a) Discuss and apply asset-based valuation models, including:

i) net book value (statement of financial position) basis

ii) net realisable value basis
iii) net replacement cost basis

b) Discuss and apply income-based valuation models, including:

i) price/earnings ratio method
ii) earnings yield method

c) Discuss and apply cash flow-based valuation models, including:

i) dividend valuation model and the dividend growth model
ii) discounted cash flow basis

3. The valuation of debt and other financial assets
a) Discuss and apply appropriate valuation methods to:

i) irredeemable debt
ii) redeemable debt
iii) convertible debt
iv) preference shares

4. Efficient Market Hypothesis (EMH) and practical considerations in the valuation of shares
a) Distinguish between and discuss weak form efficiency, semi-strong form efficiency and strong form efficiency
b) Discuss practical considerations in the valuation of shares and businesses, including:

i) marketability and liquidity of shares
ii) availability and sources of information
iii) market imperfections and pricing anomalies
iv) market capitalisation

c) Describe the significance of investor speculation and the explanations of investor decisions offered by behavioural finance

G Risk Management

1. The nature and types of risk and
approaches to risk management
a) Describe and discuss different types of foreign currency risk:

i) translation risk
ii) transaction risk
iii) economic risk

b) Describe and discuss different types of
interest rate risk:

i) gap exposure
ii) basis risk

2. Causes of exchange rate differences and interest rate fluctuations
a) Describe the causes of exchange rate fluctuations, including:

i) balance of payments
ii) purchasing power parity theory
iii) interest rate parity theory
iv) four-way equivalence

b) Forecast exchange rates using:

i) purchasing power parity
ii) interest rate parity

c) Describe the causes of interest rate fluctuations, including:

i) structure of interest rates and yield curves
ii) expectations theory
iii) liquidity preference theory
iv) market segmentation

3. Hedging techniques for foreign currency risk
a) Discuss and apply traditional and basic methods of foreign currency risk management, including:

i) currency of invoice
ii) netting and matching
iii) leading and lagging
iv) forward exchange contracts
v) money market hedging
vi) asset and liability management

b) Compare and evaluate traditional methods of foreign currency risk management.
c) Identify the main types of foreign currency
derivatives used to hedge foreign currency risk and explain how they are used in hedging. (No numerical questions will be set on this topic)

4. Hedging techniques for interest rate
risk
a) Discuss and apply traditional and basic methods of interest rate risk management, including:

i) matching and smoothing
ii) asset and liability management
iii) forward rate agreements

b) Identify the main types of interest rate derivatives used to hedge interest rate risk and explain how they are used in hedging. (No numerical questions will be set on this topic)

H Employability and technology
skills

1. Use computer technology to efficiently access and manipulate relevant information
2. Work on relevant response options, using available functions and technology, as would be required in the workplace
3. Navigate windows and computer screens to create and amend responses to exam requirements, using the appropriate tools
4. Present data and information effectively, using the appropriate tools