ACCA F9 - Business Finance |

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Link: https://www.patreon.com/posts/acca-f9...

This video will cover section E of ACCA’s F9 – Financial Management.

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)

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On successful completion of this video, you will be able to:

1. Sources of, and raising, business finance
a) Identify and discuss the range of short-term 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 long-term 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) m .

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

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 SME's.





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