CA2.5 – Financial Management

CA2.5-Financial Management

On completion of this module, candidates will reach a competency sufficient to be able to:

• Evaluate financing options for organisations using a range of methods and taking into account a variety of stakeholder views
• Appraise investments
• Undertake fully appraised business valuations
• Appraise working capital requirements

Syllabus topics	Weighting (%)	LO
Evaluate financing options for organisations using a range of methods and taking into account a variety of stakeholder views	20	1 and 2
Appraise investments	30	3 and 4
Undertake fully appraised business valuations	25	5
Appraise working capital requirements	25	6

Learning outcomes

• LO1: Evaluate the role of financing within an organisation and the factors, including risk, that affect financing decisions
• LO2: Calculate and advise the financing requirements of an organisation from a range of options

• LO3: Apply appropriate, risk-based investment appraisal techniques to evaluate investments
• LO4: Evaluate investment choices within the context of a broader set of factors, including risk

• LO5: Prepare business valuations
• LO6: Appraise working capital requirements for organisations

1. Financing decisions: LO1, 2
   1. Explain the relationships between business objectives and financial management objectives and the processes of developing strategy
   2. Evaluate based on a given scenario the impact of external factors and financial market issues upon business and financial strategy
   3. Evaluate the implications of given terms in a loan or financing agreement including covenants, warranties and guarantees
   4. Evaluate the roles, motivations and interests of different stakeholders in financing decisions
   5. Calculate based on a given scenario using given data and information the future financing requirements of an entity making reasoned assumptions and using suitable techniques to deal with uncertainty using information relating to current plans and operations
   6. Assess appropriate options for financing an entity based on a given business scenario and environment
   7. Compare financing options including tangible and intangible benefits using selected and appropriate financial appraisal techniques and supporting tools
   8. Evaluate giving suitable advice on the costs of different financing methods both before and after tax and using a weighted average cost of capital
   9. Explain the effect of capital gearing on investors perception of financial risk and return
   10. Explain how group reconstructions, purchase of own shares and distributions using distributable profits may support financing decisions
2. Investment decisions: LO3, 4
   1. Assess appropriate investment appraisal techniques based on a given business, its objectives and circumstances
   2. Assess appropriate discount factors or rates used to undertake an investment appraisal based on a given business scenario, data and information
   3. Assess appropriate data that may be used in cash flow calculations based on a given business scenario, data and information, including taking account of taxation and inflation
   4. Assess the implications including advising on the results on investment appraisal analysis using information derived from a business scenario
   5. Assess other factors that may need to be considered beyond basic investment appraisal analysis including assessment of risks, subjective factors intangible factors and limitations in data and information may affect the advice given
   6. Calculate an optimal investment plan in situations when there are capital restrictions and limitations
   7. Draft a simple investment plan with commentary based on a business scenario that requires an investment appraisal to be undertaken or where information is given
   8. Evaluate the impact of non-financial factors on making an appropriate investment decision taking into account economic, social and environmental issues
3. Business valuations: LO5
   1. Calculate a valuation based on income, cash flow or asset bases with explanations of a business or shares or other securities of a company
   2. Illustrate how sensitivity analysis can support a business or share valuation
4. Appraise working capital requirements: LO6
   1. Explain the role of working capital management for organisations
   2. Evaluate working capital management techniques
   3. Explain the working capital requirements for a range of different organisations and circumstances.