ACCA Financial Management
ACCA Financial Management
ACCA Financial Management
Kartei Details
| Karten | 157 |
|---|---|
| Sprache | Deutsch |
| Kategorie | Finanzen |
| Stufe | Andere |
| Erstellt / Aktualisiert | 25.08.2025 / 25.08.2025 |
| Weblink |
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Weak-form efficiency
share prices reflect all information contained in the record of PAST prices.
share prices will follow a random walk
not possible to forecast prices
Semi-strong form efficiency
Share prices reflect all information currently PUBLICLY available
Price will only change when new information is published
only insider information can forecast price movements
Strong-form efficiency
share prices reflect all information, published & unpublished.
share prices can not be predicted, gains through insider dealing are not possible as the market kows everything
Term Structure of Interest Rates and Yield Curves & its reasons
- Liquidity Preference Theory
- yields need to rise as investors require higher returns for compensation for increased liquidity for longer periods
- Expectations Theory
- if IR are expected to rise in the future, the curve may rise more steeply
- Market Segmentations Theory
- different investors have different interests (Banks for short-term yields, Pension funds for long term)
- Risk
- yield curve for corporate debt is steeper than for government debt
Contractionary Fiscal Policy
Indicates a Government surplus
The government is reducing demand by withdrawing higher amounts from the economy
Impact of decreasing/increasing Interest Rates
Decreasing IR
- spending is more attractive - increased demand
- CoC will decrease
- NPV will increase
- Sharehodlers will expect lower returns
Increasing IR
- disposable income reduced (for people w. loans)
- saving is more attractive due to interest rates, therefore less spending
What includes monetary policy
- Interest rates
- monetary supply
What includes fiscal policy
- taxation
- government spending
What is the impact of inflation for exports/Imports
Export is more expensive (for foreigners)
imports is cheaper (for domestic customers)
Annualized Interest Rate
R = (1+r)^360/d
d= period as given
360/365 days
R = annual interest rate
r = interest rate for period given
what are discounted instruments?
they are sold at discounted price and redeemed at face value
no interest
return earned on difference
securitisation
conversio of illiquid assets into marketable securities
reverse yield gap
yields on safer investments (government bonds, debt etc) higher than on riskier investments (equity etc)
Treasury bills
ST government securities, issued at discount
certificate of deposit
money deposited for a set period of time with fixed IR (higher IR than savings account)
4 main objectives of macroeconomic policy
- economic growth
- stable inflation
- unemployment
- balance of payment (import/Export)
Asset expenditure & Capital expenditure
Asset expenditure = incurred in acquisition or improvement of non-current assets
Expense expenditure = incurred to maintain non current assets
Payback period
Time for the undiscounted operating CF to pay back the initial investment
Initial investments / Annual CF BEFORE Depreciation & after tax
ROCE for a signle investment
Alternative "Names" for ROCE
ROCE = Average annual operating Profit / Initial Investment
Initial (averagee) investment = (Initial inv. + scrap value) / 2
average annual profit = Total CF - Total depreciation / nr of years !! only subtract Depreciation if cashflow and not Operating acc. profit (op. acc. profit already includes depreciation)
alternative: ARR acounting rate of return / ROI
simple vs compound interest
Simple: Interest accrues only on iitial amount invested (e.g 100, 10% = 10 each year)
Compount: interest is reinvested alongside principal P*1.05^4
Effective Annual Rate of Interest
(1+R) = (1+r)^n (n= e.g 360/90 = 40)
Necessary when interest is charged non annually
What DCF methods are available?
NPV = absolut measure
Internal Rate of Return = relative measure
what does NPV show
The theoretical change in the dollar value of the company due to a project -> indicates the change in shareholder wealth due to a project
what is an annuity / annuity factor?
Annuity = fixed sum of money paid/received each year
annuity factor = sum of discount factors
spreadsheet function for NPV
NPV(rate, SUM of CF)
Perpetuity - Formula for PV
Perpetuity = stream of identical CF to infinity
= CF * 1/r
what is the internal Rate of Return IRR
The discount rate at which PV of projects cashflow is zero
Initial investment = PV of cash inflows
How is IRR calculated for:
Perpetuties
Annuities
Rest
Perpetuities: Inititial investments = CF/r
Annuities: Initial Investment = CF * annuity factor
Rest:
- calculate NPV at chosen discount rate
- NPV >0: recalculate with higher discount rate / NPV <0: recalculate with lower discount rate
- IRR = A + Na / (Na-Nb) + (B-A)
- A = lower discount rate
- B = higher discount rate
- Na = NPV with a
- Nb = NPV with b
IRR spreadsheet function !!! IRR(CF values)
Real vs. Nominal Interest Rates
Real interest rate = Actual return received / IR in absence of inflaction
Nominal interest rate = adjusted for effect of inflation (IR for loans etc)
Fisher formula (1+i ) = (1+r)(1+h)
what is it used for and what do i, r, h represent?
to link nominal & real IR.
I = real interest rate
r = nominal IR
h = inflation
Specific vs General Inflation Rate
Specific = Inflation rate on a individual item
General = weighted average inflation rate of many items
Working Capital calculation and impact on CF
Working capital = Inventories + receivables - payables
Working capital increase = Cash outflow
Working capital decrease = cash inflow
Capital Rationing
Hard Capital Rationing
Soft Capital Rationing
Single-period capital rationing
Multiple-period capital rationing
Capital Rationing = not enough capital available for all available projects with Positive NPV
Hard Capital Rationing = Capital markets limit the amount of finance available
Soft Capital Rationing = company sets internal limits
Single-period capital rationing = capital is short in only one period
Multiple-period capital rationing = Capital is short in multiple periods
Capital Rationing - Method for Divisible Projects (any/proportionate investments possible)
- Calculate Profitability Index = NPV of net cash flows / initial investments
- rank projects
- allocate funds, starting with highest index
Capital Rationing - Method for non- Divisible Projects (100% or not at all)
- List all possible combinations
- choose combination with highest NPV
Capital Rationing - Method for Mutually exclusive projects (two or more projects can not be undertaken simultaneously)
- Same as for non-divisible projects but keep in mind that evey combination can only include 1 mutually exclusive project
What is the basis for Asset Replacement Decisions?
Equivalent Annual Cost EAC (cost of owning & Operating the asset)
EAC = NPV / annuity factor
- choose lowest EAC
How to proceed for Lease vs. buy decisions
- Investment decision: Calculate NPV with WACC
- Financing decision: Calculate NPV with after-tax cost of debt
- if PV of cost of best finance source is less than PV of operating CF, the project should be undertaken
Risk vs Uncertainty
Risk = several possible outcomes exist, the probabilities of which can be quantified from historical data
Uncertainty = the inability to predict possible outcomes due to lack of historical data
-> ONLY RISK IS MEASURABLE
Risky project = future CF more variable
how to calculate sensitivity of an NPV
NPV / PV of relevant CF
the lower = the more sensitive
for change in sales volume, relevant CF = contribution
