This is a lecture from open tuition. To benefit from the lecture, you should download the free lecture notes from open tuition com.
My name is Jon Moffitt, so this is the first in a series of lectures looking through financial management, and this first chapter of our free lecture notes, and do make sure you have downloaded the lecture notes because in later chapters when we come to all the calculations, I'll not only be explaining what's happening, but working through examples that are in the lecture notes. But, this first chapter is just an introduction really to the exam and to the syllabus, And before I go through it, although there are a lot of calculations coming in later chapters, do appreciate, approximately only 50% of the exam is arithmetic, some of which they're easy and you enjoy, some of which is quite a bit messy and needs a lot of practice, but only 50%, the other 50% is effectively written, either in Section C where is long form questions, perhaps part A of the question will be some arithmetic, part B of the question, I'll be talking about it or explaining something, it'll be written, or in the multiple choice type questions in sections A and B some questions, yes, will involve arithmetic, but other questions, I always call written, but, you know, which of the following statements is true, where there's no arithmetic involved, but it's testing that you understand what was happening, so, as you go through this series of lectures, you will find that in so much as I do talk about supposed to arithmetic, and I'm not doing it for fun, it's because, you know, they really do check you understand what's happening, not just that you can learn a few rules, or if you for me, okay, this is really introduction to the syllabus, and you will see on this one page the four key areas that the financial manager is concerned with, which obviously we're going to go through in detail in all the later lectures, because the financial manager it's much more concerned about the long term position of the company, you know, we're not using the balance for accountants, financial accountant affected is reporting what last year what was last year's profit, what was last year's loss, we're not interested in the management accountant paper, and funnel because the management accountant is looking much more of a short-term budgets for next year, decisions about what price to charge next year, and so on, financial manager is locked so with a long-term and there are four main areas that they're concerned with.
One is the raising of long term finance. A company needs money to expand, if we want to build a new factory we're gonna have to raise finance in order to be able to afford the factory, and of course, how can we raise long term finance, we can raise money from shareholders issue shares, or we can take out long term loans, we'll again cover it all in later chapters but you are expected to know about different ways of raising money, different ways of getting money from shareholders, different ways of taking long term loans, and of course, one factor in deciding how to raise money is looking at how much it costs, you know, the interest you're gonna have to pay, you want to borrow money in the cheapest way but there are lots of calculations aren't working out the cost of long term money.
A second big area for the exam is what we call the investment decision, and what I mean here by investments, I said a minute ago, if we're going to build a new factory of need half a million, then okay, we need to decide where the money's coming from, but equally, we need to decide, is this a good investment or isn't it, you know, shall we buy this factory or shan't we, or maybe lifting and buying a new machine which will cost a hundred thousand, is it worth buying the machine or isn't it, you know, what returns do we expect, is it a good project, we'll go ahead with it, or is it a bad project, and so it's different ways making that sort of decision by far the most important ways something you should have heard of from paper F 2 which is discounted cash flow or net present values, but again I'll go through all the details, a lot of it, in fact, in later chapters.
A third area, the management of working capital, by working capital we're talking about current assets, current liabilities, receivables, inventories, payables, well although in seven senses and under short-term isn't there it's important is financial manager's job to develop policies for the long term management, what I'm getting at, is things like receivables, I think sensibly if we sell on credit we want to get customers to pay as soon as possible, to quickly pay, the better, the question how do we go about getting to pay quickly, we need to develop a policy, you know, maybe a way of getting it to pay quickly, will offer them a discount if they pay quick, well discipline financial manager to decide what our policy should be, and how much discount we should give them, unto me afford that sort of thing, so yet again, there are many chapters on managing working capital, there's a lot that can be examined.
The final major area absolutely listing obviously every single topic in the syllabus here but, the management of risk, and we really talked about two main types of risk, one is, if we do a lot of trading abroad, if we're in the UK with buying goods for an American supplier who wants paying in dollars, then we're at risk due to the fact that exchange rates change, you know today there may be two dollars to the pound, but by the time I come to pay for my goods, could have changed, that could be one and a half dollars to the pound, and so those risks could do to exchange rate movements, well the value writers job is to decide how are we going to manage that risk, how are we going to reduce the risk, and again there are lots of ways you expected to be aware of dealing with, now the other main aspects of risks, which again dealt with an idea chapter, is what I call interest rate risks, that if we're borrowing money, but okay, we make me boring then the interest rate at the moment maybe 10%, that's same but the interest rates change and interest rates may be higher, may be lower, but whether they high or low in fact we gonna change creates risk, well again, it's looking at ways in which we can manage that risk, reduce the risk.
So that, in a nutshell, is the main things we are going to consider, it doesn't sound much there, but as you'll see as we go through f9, is a very demanding paper, most of the calculations aren't too bad, it is a huge formula sheet so it's not a question if I can learn lots of formulae, you've given the formula sheet in the exam, but although love the calculations aren't that bad, some of them are a bit tricky, but even ignoring those, there are so many different areas within those four main areas, as so many different topics with more thought to get through, and soon, as I said before, only 50% is arithmetic, so there's a lot to think about, there's a lot you'll see as you go through the lectures, there are a lot of chapters, a lot of lectures on each one of those areas, because there's so many different things for, yes than the changing, so there we aren't for saying that was just an introduction to what's coming