Cima F3 Notes Financial Strategy Chapters 1 And 2 -

Here’s a useful based on CIMA F3 Financial Strategy , Chapters 1 & 2. It’s designed for quick recall, linking theory to exam application. 🔧 F3 Revision Tool: Chapters 1 & 2 – Core Feature Chapter 1: Role of the Financial Strategy Key focus: Aligning financial decisions with corporate objectives & stakeholder needs.

| Concept | Key Points | Exam Tip | |---------|------------|-----------| | | Financial strategy supports business strategy (growth, risk, return). | Always link a financial decision back to a strategic goal. | | Stakeholder objectives | Shareholders (wealth maximisation), lenders (security), managers (incentives). | Agency conflicts → propose aligned incentives (e.g., share options). | | Financial objectives | ROCE > WACC, EPS growth, gearing range, liquidity ratio targets. | Be specific: “Maintain gearing <50% to protect debt capacity.” | | Risk & return trade-off | Higher return requires higher risk tolerance (e.g., new market entry). | Use CAPM or risk-adjusted discount rates in calculations. | | Sustainable growth rate (SGR) | g = retention ratio × ROCE. | If actual growth > SGR → need external finance. | Chapter 2: Financial Environment & Markets Key focus: How external factors affect financing and valuation. Cima F3 Notes Financial Strategy Chapters 1 And 2

| Area | Key Points | Exam Application | |------|------------|------------------| | | Weak, semi-strong, strong form. | Semi-strong → share prices reflect all public info. No use for technical analysis. | | Sources of finance | Debt (cheaper, tax-deductible) vs. Equity (flexible, higher cost). | Match source to risk: stable cash flows → debt; high growth → equity. | | Cost of capital (WACC) | Market-based: ke (CAPM) + kd (post-tax). | WACC is discount rate for project with same risk as firm. | | Dividend policy | Signal effect, clientele effect, residual theory. | Unexpected dividend cut → negative signal (info asymmetry). | | Interest rates & inflation | Affect NPV, debt servicing, real returns. | Use nominal rates if cash flows are nominal. | ✅ Quick Comparison: Debt vs. Equity (Exam Favourite) | Feature | Debt | Equity | |---------|------|--------| | Cost | Lower (tax shield) | Higher (higher risk) | | Risk to firm | Fixed interest & repayment | No mandatory payment | | Dilution | No | Yes | | Covenants | Often | No | | Impact on gearing | Increases | Decreases | 📌 Common F3 Exam Question Starters (Ch 1–2) “Advise the board on appropriate financial objectives for a mature, low-growth company.” → Focus: ROCE, dividend stability, low gearing. “Evaluate whether the company should raise debt or equity for a risky expansion.” → Compare: cost, risk, control, tax, financial flexibility. Would you like this as a printable one-page PDF , an Anki flashcard set , or a spreadsheet-based ratio tracker for these two chapters? Here’s a useful based on CIMA F3 Financial