CIMA Study Systems 2006: Management Accounting-Financial Strategy (CIMA Study Systems Strategic Level 2006)

Front Cover......Page 1
Strategic Level: Management Accounting – Financial Strategy......Page 2
Copyright Page......Page 3
Contents......Page 4
How to use your CIMA Study System......Page 12
Study technique......Page 14
Management Accounting – Financial Strategy Syllabus......Page 15
Transitional arrangements......Page 20
1.2 Objectives of profit-making entities......Page 26
1.3 Objectives of not-for-profit organisations......Page 30
1.4 Public and private – similarities and differences......Page 33
1.5 Assessing attainment of financial objectives......Page 35
1.6 The three key decisions of financial management......Page 37
1.7 Policies for distribution of earnings......Page 38
1.8 The impact of internal and external constraints on financial strategy......Page 44
1.9 Developing financial strategy in the context of regulatory requirements......Page 45
1.10 Major economic influences......Page 51
1.11 Modelling and forecasting cash flows and financial statements......Page 56
1.12 Current and emerging issues in financial reporting......Page 61
1.13 Summary......Page 68
Readings......Page 70
Revision Questions......Page 76
Solutions to Revision Questions......Page 78
2.2 The finance function......Page 84
2.3 The treasury function......Page 85
2.4 Financial markets......Page 87
2.5 Share price volatility......Page 89
2.6 The efficient market hypothesis......Page 90
2.7 Investor ratios......Page 92
2.8 Working capital management strategies......Page 96
2.9 Summary......Page 99
Readings......Page 100
Revision Questions......Page 102
Solutions to Revision Questions......Page 104
3.2 Shareholders’ funds......Page 110
3.3 Raising share capital – the stock market......Page 112
3.4 Debt finance......Page 120
3.5 Medium-term financing......Page 125
3.6 Financing of small businesses......Page 133
3.7 Summary......Page 136
Readings......Page 138
Revision Questions......Page 142
Solutions to Revision Questions......Page 148
4.1 Introduction......Page 158
4.2 Measuring gearing......Page 159
4.3 Cost of capital......Page 162
4.4 Weighted average cost of capital......Page 169
4.5 Marginal cost of capital......Page 171
4.6 The traditional theory of gearing......Page 173
4.7 Modigliani and Miller’s theories of gearing......Page 174
4.8 Cost of capital and adjusted cost of capital......Page 179
4.9 Risk and reward......Page 182
4.10 Portfolio theory......Page 183
4.11 The capital asset pricing model......Page 187
4.12 Using the CAPM as an investment tool......Page 192
4.13 MM, CAPM and geared betas......Page 193
4.14 Use of CAPM in investment appraisal......Page 196
4.15 Arbitrage pricing model......Page 197
4.16 Summary......Page 198
Readings......Page 200
Revision Questions......Page 206
Solutions to Revision Questions......Page 212
5.1 Introduction......Page 222
5.3 Earnings-based valuations......Page 223
5.4 Dividend-based valuations......Page 224
5.5 Cash-based valuations......Page 226
5.6 Business valuations and efficient markets......Page 227
5.7 Intellectual capital......Page 228
5.9 Recognition of the interests of different stakeholder groups in company valuations......Page 238
References......Page 239
Readings......Page 240
Revision Questions......Page 248
Solutions to Revision Questions......Page 252
6.2 Terminology and types of merger......Page 260
6.3 The reasons for merger or acquisition......Page 261
6.4 Defences against takeover......Page 262
6.5 Methods of payment for an acquisition......Page 263
6.6 The post-merger or post-acquisition integration process......Page 265
6.7 Reasons why mergers and acquisitions fail......Page 273
6.8 Management buyouts......Page 274
6.9 Reconstruction......Page 276
6.10 Summary......Page 277
Readings......Page 278
Revision Questions......Page 282
Solutions to Revision Questions......Page 290
7.1 Introduction......Page 300
7.2 Accounting rate of return......Page 301
7.3 Payback......Page 303
7.4 Discounting techniques......Page 304
7.5 Capital rationing......Page 310
7.6 Annual equivalent cost......Page 313
7.7 Summary......Page 316
Revision Questions......Page 318
Solutions to Revision Questions......Page 322
8.2 Taxation......Page 330
8.3 Inflation......Page 332
8.4 Working capital......Page 334
8.5 Identification of a project’s relevant costs and benefits......Page 335
8.6 Linking investment in IS/IT with strategic, operational and control needs......Page 336
8.7 Adjusting for risk......Page 341
8.8 Evaluating and reporting investment opportunities......Page 347
8.9 Adjusted present value......Page 349
8.10 Assessing investments as options on future cash flows......Page 351
8.11 Project implementation and control......Page 355
8.12 Summary......Page 359
Readings......Page 362
Revision Questions......Page 368
Solutions to Revision Questions......Page 374
9.2 Financing overseas operations – a global strategy......Page 384
9.4 The Euromarkets......Page 386
9.5 The effect of taxation......Page 387
9.6 International capital budgeting......Page 388
9.7 APV method......Page 391
9.8 Summary......Page 393
Revision Questions......Page 394
Solutions to Revision Questions......Page 398
Revision technique......Page 406
Format of the examination......Page 407
Case-study Questions......Page 412
Solutions to Case-study Questions......Page 444
Scenario Questions......Page 504
Solutions to Scenario Questions......Page 544
Index......Page 636
Give CIMA Publishing Your Feedback and Win a Prize......Page 644