This content introduces Section A of the AFM syllabus, focusing on the expanded roles of a senior financial executive beyond traditional financial management, encompassing strategic planning, financial planning, communication, risk management, and ethical considerations, while also revising key concepts related to investment and financing decisions, particularly equity financing methods.
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So we are starting with section A of the
AFM syllabus
and in section A the core areas that we
will be discussing include the role of
senior financial executive or an advisor
like I always tell you this is how you
have to see yourself what are your roles
we'll be looking at that and that will
be talking about few things that you've
learned learned before when you did FM.
So this part there will be a lot of
refresh and maybe revision of what
you've known before but a bit new things
will also be added in that space. So
we'll look into those rows and we'll
look at risk management.
We look at behavior finance. Uh you've
not done this before. Risk management if
you've done it anywhere is the same
thing anywhere you seen it in any paper.
So that might be a revision for some
people but at the same time please pay
attention and I will close it out with
issues around ethics and corporate uh
environmental social and governance.
Right? So those are the four key areas
that we'll quickly cover under section
A. It's a bit big so I'll do couple of
videos to cover that and mostly
theoretical. After this we'll go into
section B. So this is what we want to
start with um today in this uh series.
So I'm going to start with the role of
senior financial
executive talking about an advisor,
financial advisor. So what are your
roles? As you know,
we've done this before in FM and we said
there are key roles that we expect the
finance manager to do. Those are the
same roles we'll be talking about here,
but we'll even talk about them more. But
before we go into the roles, why are we
even talking about the roles? Remember,
you have an organization
and every organization has its financial objective
objective
which is what they want to achieve.
Especially if you're a profit-making organization,
organization,
you have what we call the primary
objective, excuse me,
The primary objective of a company is
which means you want to be profitable.
You want to do an investment with NPV
that is positive whereas that is just
the minimum. There's a secondary
objective which is usually to achieve a target.
So remember primary objective we say we
want to be positive we want to be
profitable. So which means even if we
have NPV of plus 1 million for an
investment we are okay. We are
maximizing shareholders worth because we
are not making losses. We are making
more money for the shareholder. However,
on top of that, you can have a secondary
objective that is saying that before you
do an investment minimum, you must
and in that case it's gone beyond just
making positive NPV. Now you must make
certain amount and that is secondary
objective which means first of all you
must have achieved the primary objective
before you start talking about the
secondary objective. However, for you to
achieve this objective
maximizing share's worth or achieving
the target, there are roles that you
have to pay attention to. There are
things you have to do. There are
decisions that you have to take very
critical. Yeah. So those critical
decisions, we look at them
because if don't pay attention to those
decisions, you can't achieve this
objective. And the first one is for you
to choose the right investment. So
that's why we said investment decision
is critical
because it's investment that you make
that will generate those profit that
will generate those positive NPV. So
that's very critical and for you to make
investment decision
you need financing because no matter how
fantastic that investment is you need
money to
invest. So financing becomes the next
one and you finance investment you're
going to make profit. You have to share
the profit. How do you want to share it?
When do you want to share it? That is
where the dividend policy comes in. So
these three are your three key decisions
that you have to make as a senior
executive, as an advisor talking to a
client on what to do, right? So you need
to know where the fund will come from
the source.
What are you going to invest in? How do
you use the fund?
and when
and how much of dividend do you want to
share? Those are critical decisions that
has to to be taken.
However, this is what you've learned in
FM. But in AFM, we're now saying that
beyond all these critical decisions,
there are more decisions, there are more
things you have to there are more roles
you have to perform as a senior
executive. Yeah. And that is talking
about not just those three decisions but
even in terms of the overall strategy.
You need to be able to develop the
overall strategy of the company because
your overall strategy must align with
those decisions. So if you don't pay
attention to the strategy you'll be
making wrong decision. Take for instance
if your strategy is to be a cost
leadership then you know that you have
to minimize cost in all front. So when
you are doing your financing decision
most likely you'll be looking at debt
because we agree that generally speaking
debt is cheaper. So in financing you'll
be tending towards using debt instead of
using equity
or if your strategy is to be a grand
champion. You want to be environmentally
so conscious and all of that then your
investment will be limited because you
can't invest in oil and gas. You can't
invest in things that creating
pollution. You have to focus so much in renewables.
renewables.
Even your financing will also be
tailored towards financing that are
focusing on green investment. So you
can't get money from just anywhere but
you'll be able to get money from green funds,
funds,
right? So and you're going to chase
green investment as well. So your
strategy will influence your three key policies.
policies.
strategy will influence all of this. So
very important to take note of that. Likewise,
Likewise,
beyond those three decisions, you will
be involved in develop developing
Yeah. So it's not just what do you need
to invest in, you need to also be able
to build a financial plan, which means
you are trying to set goals
for the company as well. How much do we
need to make? Especially talking about
the secondary objective
of achieving target.
This one, this is part of your objective,
objective,
part of your roles to be able to set
those target for the company. The plans,
what do we need to achieve? How much do
we need to make? And even after
developing the plans, it goes beyond
that because you not need to communicate.
communicate.
So the plans have to be communicated to
the stakeholders because if they don't
know about it, how can they work to
achieve it? So you must be able to
to anybody that needs to know your stakeholders.
stakeholders.
Yeah. And beyond that, definitely you
must be able to monitor your plans
and control it because if it's going out
of hand, you might need to act quickly
or you might need to even sometimes
abandon the plan. Sometimes you need to
make changes and that is also why your
risk management will come handy very
critical. So beyond those three core
decisions, you must be able to work on
strategy, build financial plans,
communicate effectively, monitor your
plans, and do effective risk management.
Those are additional rules that are
coming in that you probably didn't learn
under financial management paper. But
now all of these you need to know about
it. Yeah. So just talking about those
three key decisions just to maybe do a
quick revision for you. Remember when
we're talking about investment decision
what you are saying is that should we
invest or should we not invest and if we
are going to invest then NPV has to be
positive and if you're using IRRa method
then our IRA definitely must be more
than our cost of capital.
that those are the things you learned on
that uh financial mindment paper and
section B of the syllabus will really do
a lot of justice to this investment
decision likewise section C on mergers
and acquisition we're going to learn a
lot and for financing decision what
we're saying is that we can either
finance with debt or equity
or we can even finance with both right
so but there are things we need to
consider if we're going to use either um
edit or equity and which I'm going to
cover um briefly as we move on. So maybe
let me spend time on this
capital because there are few new
concepts that you need to learn and I'm
Yeah, we know equity is a owner's fund.
Yeah. So a bit of deep dive into this
that is talking about the capital that
has been contributed by the
owners of the business. So this is capital
capital contributed
by the owners. And who are the owners?
So we know that this is our equity.
Yeah. And that means we are saying this
and the reserves
because they've contributed money their
money has made more money and all of
that will be going into the reserves. So
and remember that your reserves can
either be capital reserve.
So I'm giving you some revision now
because these terminologies are quite
important as we move on into the core of
the syllabus. You need to remember all
these things I'm talking about. And you
also have the revenue reserve.
Yeah. And I'm sure you know your re
revenue reserve is your retained
earnings and your capital reserve.
You're talking about things like
revaluation reserve. You're talking
about things like share premium.
So please take note of that. Now, how do
you raise equity?
How to raise equity?
Very critical. You know this.
Some of this you probably know from FM,
but some might be new. So, please pay
very good attention here. How do you
raise equity?
The first method you know is IPO, which
we call the initial public offering. So,
I'm going to explain each of these. Pay attention.
attention.
This is your initial public offer. And
what does this mean? This is just the
first time a private company is going public.
public.
Private company going public. And this
requires a lot of things. Doing a lot of
brochure, marketing, getting
consultants, legal people to do
evaluation of the company for you. Then
you have to go to the stock exchange.
Take for instance if you're in London UK
London stock exchange if you're in the
US maybe New York Stock Exchange Toronto
Stock Exchange. So you're going there to
say I want to go public which means I
want to sell my shares to the public. We
want to go from being owned by few
people to being owned by anybody who is
interested in us. And that first time
you are doing that is called IPO. After
IPO if you want to go and raise more
shares in public to make more money then
that is called your public offering.
because it's not initial. You've done it
before. This is probably your second
third time. Yeah. All of these what you
are doing is you are you are looking for
money. So this is financing.
So if you're looking for money through
issue of shares, you can use any of this
method. You can also use what we call
the placement.
Yeah, placement you also selling to
public but not just all public. This
time around you are selling your shares
only to selected. So you must have
identify the people you want to sell to.
Those are the people you are selling to.
Not just anybody can buy. Only few
people can buy. Yeah. So that's another
method. Another method which you'll
probably just be hearing for the first
time is what we call the stock exchange introduction.
