Effective Financial Management

ABE unit code 5UEFM

Ofqual code T/615/7473

Unit type Mandatory

Level 5

Credits 20

GLH 70

Assessment method Timed Open Book Exam

The focus of Effective Financial Management is the management of financial resources in a business. It addresses the
applied techniques that managers need in order to take financial decisions in a business. It also addresses the critical
and theoretical knowledge and skills that managers need to take financial management responsibilities.

The aim of this unit is to enable you to:

• Assess the objectives of financial management

• Evaluate organisational activities, processes and performance
• Understand the impact of the financial risk on financial management in a business
• Examine and explain how businesses can finance their activities
• Evaluate options for the financing of a business
• Apply techniques to make appropriate investment decisions

© ABE Unit Syllabus – Version 2.1 – October 2021

What you’ll learn
The table below shows the learning outcomes of this unit (what you will be able to do or what you will know), along
with the assessment criteria (what you will be able to do to demonstrate achievement of the learning outcome).

Learning Outcomes Assessment Criteria

Weighting
The learner will: The learner can:

1. Assess the objectives of 1.1 Assess the objectives of financial management in order to
financial management and decide how best to formulate a financial management
the role of different strategy for a business
stakeholders in the financial
1.2 Analyse the roles played by different stakeholders in order
strategy of a business
to select a financial management strategy that best meets 20%
the needs of stakeholders
1.3 Discuss the ethical issues that need to be considered in
financial management in order to ensure that financial
practices reflect ethical requirements and standards

2. Evaluate organisational 2.1 Analyse business objectives, organisational activities and

activities, processes and processes
performance, using
2.2 Evaluate business performance, and financial management
projected financial
processes, using financial statements and calculation of key
statements and measures 20%
financial ratios
of business performance
2.3 Apply alternative techniques in order to evaluate the
financial management of key organisational activities and
processes

3. Evaluate financial risk using 3.1 Assess the importance of financial risk in order to select
suitable techniques in order appropriate financial management techniques
to apply approaches that
3.2 Evaluate financial risk using suitable techniques in order to
reduce exposure to
ensure financial management decisions take account of 20%
financial risks
financial risks
3.3 Apply approaches to financial risk management that reduce
exposure to financial risks

4. Evaluate options for the 4.1 Assess the role of capital markets and the efficient markets
financing of business hypothesis in order to understand the effects of financing
activities, including the decisions on the business
characteristics of different
4.2 Analyse the role and characteristics of different sources of
sources of finance and how 20%
finance in order to identify suitable sources of finance that
best to meet the financing
best meet the financing needs of a business
needs of the business
4.3 Evaluate sources of finance in order to decide how best to
meet the financing needs of the business

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 5. Evaluate investment 5.1 Select and justify investment appraisal techniques in order
opportunities in order to to ensure that investment decisions reflect the financial
ensure that investment management strategy of the business
decisions reflect the needs
5.2 Compare investment appraisal techniques for a range of
of the business and its
typical investment scenarios in order to best meet the
financial management 20%
needs of the business
strategy
5.3 Analyse relevant non-financial factors, including the
limitations of investment appraisal techniques, in order to
ensure the investment decision-making takes account of
the broader strategic needs of the business

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Capabilities
Alongside academic learning and development, ABE qualifications have been designed to develop your practical skills
and capabilities. These capabilities are highlighted as certain values, knowledge, skills, and behaviours that will help
you in your professional development.

Below is an overview of the behaviours, skills, and attitudes that you will develop through this unit:

Element of learning Key capabilities developed

Element 1 - The Ability to identify and understand the objectives of financial management
objectives of financial Awareness of different stakeholders in the financial strategy that is used by a
management business and their role
Awareness of the role of the finance function and of financial management within the
wider business
Appreciation of the agency problem and how it might be managed
Analytical skills, commercial awareness, critical reflection, ethical appreciation,
financial management, stakeholder management

Element 2 - Ability to discuss business objectives, organisational activities, organisational

Organisational activities, processes and performance measures and the link between them
processes and Ability to assess business performance using financial statements and key accounting
performance ratios
Ability to prepare projected financial statements for a business and interpret their
significance for decision-making purposes
Ability to recommend possible measures of business performance and wealth
maximisation
Analysis, planning and implementing, using reporting skills, numeracy, evaluation,
preparation of accounts

Element 3 - Risk and Ability to use suitable techniques to evaluate financial risks and their impact on
financial management organisational activities and decision-making
Awareness of how different types of risk influence the pursuit of wealth maximisation
Ability to calculate financial gearing for a business and awareness its significance
Ability to evaluate different financial structures and assess their implications for the
business
Critical thinking, problem solving, numeracy, evaluation, ethical appreciation,
financial management, decision-making

Localisation
It is very important when studying for your ABE qualification that you consider your local business environment and
try to apply what you are learning to relevant scenarios in your local business context. Doing this will help you to put
your learning into practice and use it in your professional day-to-day activities.

You should take into account the following when preparing for your assessment:

• Local legal and taxation requirements

• Local corporate governance requirements
• Local cultural environment

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Indicative Content
1. Assess the objectives of financial management and the role of different stakeholders
in the financial strategy of a business (Weighting 20%)
1.1 Assess the objectives of financial management in order to decide how best to formulate a financial management
strategy for a business
• The role of the financial function and of the financial manager
• The relationship between financial management and modern economic theory, including time and risk

1.2 Analyse the roles played by different stakeholders in order to select a financial management strategy that best
meets the needs of stakeholders
• The stakeholder approach and the need to serve the groups that are affected by the operations of the
business
• The identification and treatment of different stakeholder groups
• The techniques that can be used to analyse the roles that are played by different stakeholders
• The relationship between the needs of stakeholders and the development of a financial management
strategy
• The effects of multiple business objectives and how these create problems of multiple accountabilities

1.3 Discuss the ethical issues that need to be considered in financial management in order to ensure that financial
practices reflect ethical requirements and standards
• The key ethical considerations that need to be considered in financial management and in financial practices
• Ethical codes and practice and policies in financial management, including corporate governance codes
• Shareholder involvement and the provision of incentives for directors and managers
• The agency problem that may exist between shareholders and directors

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2. Evaluate organisational activities, processes and performance, using projected
financial statements and measures of business performance (Weighting 20%)
2.1 Analyse business objectives, organisational activities and processes
• The development of business objectives and the planning of organisational activities and processes
• The role of projected financial statements and key financial ratios in organisational planning

2.2 Evaluate business performance and financial management processes, using financial statements and calculation
of key financial ratios
• The preparation of projected financial statements and their role in the evaluation of the impact of plans on
financial performance and position
• The checking of projected financial statements for reliability
• The use of projected financial statements and key financial ratios and their role in the critical evaluation of
organisational activities and processes
• The analysis of financing gaps based on projected financial statements and key financial ratios

2.3 Apply alternative techniques in order to evaluate the financial management of key organisational activities and
processes
• The application of horizontal and vertical analysis in the evaluation of financial management activities and
processes
• The application of the percent-of-sales method and its use in financial planning
• The preparation of short-term and long-term cash projections using projected financial

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3. Evaluate financial risk using suitable techniques in order to apply approaches that
reduce exposure to financial risks (Weighting 20%)
3.1 Assess the importance of financial risk in order to select appropriate financial management techniques
• The nature of risk and its importance in financial management
• The different types of risk and their impact on organisation activities and decision-making
• The impact of different types of risk on financial management processes and activities

3.2 Evaluate financial risk using suitable techniques in order to ensure financial management decisions take account
of financial risks
• The calculation of operational gearing
• The calculation of financial gearing
• The significance of financial gearing and its importance to organisational activities, processes and
performance

3.3 Apply approaches to financial risk management that reduce exposure to financial risks
• The evaluation of financial risk using suitable techniques and approaches to financial risk management, such
as sensitivity analysis, scenario analysis, simulations, and standard deviation, to reduce exposure to financial
risks
• The evaluation of different financial structures and their implications for the business

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4. Evaluate options for the financing of business activities, including the characteristics of
different sources of finance and how best to meet the financing needs of the business
(Weighting 20%)
4.1 Assess the role of capital markets and the efficient markets hypothesis in order to understand the effects of
financing decisions on the business
• The calculation of the weighted average cost of capital for a business and its usefulness in making
investment decisions
• The nature, role and purpose of the equity and debt markets
• The methods by which share capital can be issued
• The nature and implications of stock market efficiency
• The needs of smaller businesses and the methods by which smaller businesses might raise share capital

4.2 Analyse the role and characteristics of different sources of finance in order to identify suitable sources of finance
that best meet the financing needs of a business
• The distinctions between long-term and short-term sources of finance and between internal and external
sources of finance
• The types and characteristics of long-term sources of finance
• The types and characteristics of short-term sources of finance
• The types and characteristics of internal sources of finance
• The types and characteristics of external sources of finance

4.3 Evaluate sources of finance in order to decide how best to meet the financing needs of the business
• The matching principle and finance and its importance in the selection between long-term and short-term
sources of finance
• Other factors that need to be taken into account in the selection of a sources of finance
• The advantages and disadvantages of different types of finance

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5. Evaluate investment opportunities in order to ensure that investment decisions reflect
the needs of the business and its financial management strategy (Weighting 20%)
5.1 Select and justify investment appraisal techniques in order to ensure that investment decisions reflect the
financial management strategy of the business
• The nature and importance of investment decision-making
• The nature and characteristics of different investment appraisal techniques
• The key stages in investment decision-making
• The use of investment appraisal techniques in practice
• The advantages and disadvantages of different investment appraisal techniques
• The selection of an investment appraisal technique that best meets the needs of the business

5.2 Compare investment appraisal techniques for a range of typical investment scenarios in order to best meet the
needs of the business
• The calculation of payback period

5.3 Analyse relevant non-financial factors, including the limitations of investment appraisal techniques, in order to
ensure the investment decision-making takes account of the broader strategic needs of the business
• Investment appraisal techniques and smaller businesses
• Modifications to net present value (NPV) decision rules where there is capital rationing or there are
competing projects with unequal lives
• Non-financial factors and their importance in investment decision-making

© ABE Unit Syllabus – Version 2.1 – October 2021