ACCA FM Examiner Report Analysis: Sept/Dec 2025 Key Insights

The ACCA Financial Management (FM) paper requires strong conceptual clarity and practical application skills. Many students prepare by solving study texts and practice kits. However, one of the most powerful preparation tools is the examiner report.

The September and December 2025 examiner reports provide clear insight into question trends, common mistakes, and the level of depth expected in answers. Here, we’ll explain the key insights from these reports. It will help students understand how to prepare more effectively for the upcoming attempts.

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Why Examiner Reports Are Important?

Examiner reports explain how students performed in the exam. They highlight common errors and areas where answers lacked depth. They also show what the examiner expects in a good answer.

Students who solve four to five past examiner reports gain several benefits:

• They get exposure to many past questions.

• They understand repeated topics and question styles.

• They learn how marks are awarded.

• They avoid common mistakes made by previous candidates.

Regular practice of examiner report questions builds confidence and improves exam technique.

Section A: Objective Test Questions

Section A contains objective test questions. These questions test core knowledge and basic application. Precision is important in this section.

Example 1: Forward Rate Agreements (FRA)

A company needed a $10 million loan for nine months starting in three months. An FRA was quoted at 4.6% – 4.1%.

This corresponds to a 3:12 FRA. It means the loan starts in three months and ends in twelve months.

Since the company is borrowing, the borrowing rate of 4.6% applies.

If the market rate becomes 4.5%, the company benefits from a lower rate. However, under the FRA agreement, the bank loses 0.1%. The company must compensate the bank.

Settlement amount:

$10,000,000 × 0.1% × (9/12) = $7,500

The company must pay $7,500 to the bank.

Common mistakes included:

• Using the wrong FRA period

• Applying the deposit rate instead of the borrowing rate

• Ignoring the correct time adjustment

Students must clearly understand how FRAs protect against interest rate risk.

Example 2: Impact of Low Inflation

This question tested economic understanding.

Low inflation affects:

• Currency value

• Interest rates

• Demand

• Cost of capital

According to Purchasing Power Parity, lower inflation leads to currency appreciation.

Lower inflation also leads to lower nominal interest rates. Since interest rates fall, the cost of debt reduces. This can lower the Weighted Average Cost of Capital (WACC).

Many students confused currency appreciation and depreciation. Concept clarity is essential for such questions.

Example 3: Working Capital Funding Strategies

This question compared permanent and fluctuating working capital.

Cane Company:

• Permanent working capital: $15 million

• Maximum working capital: $20 million

• Long-term debt: $17 million

• Strategy: Conservative

Cane used long-term debt to finance all permanent working capital and part of fluctuating working capital. This reduces refinancing risk.

Abel Company:

• Permanent working capital: $18 million

• Maximum working capital: $24 million

• Long-term debt: $18 million

• Strategy: Matching

Abel matched long-term debt exactly with permanent working capital.

Students must understand the difference between conservative and matching approaches.

Example 4: EPS and Dividend Yield Calculation

Students were required to calculate Earnings Per Share (EPS).

Number of shares:
$30 million ÷ $0.50 = 60 million shares

Dividend per share:
$3 million ÷ 60 million = $0.05

Market price per share:
$0.05 ÷ 4% = $1.25

EPS:
$1.25 × 12% = $0.15

Common mistakes included incorrect percentage use and formula confusion. Accuracy is important in ratio-based questions.

Section B: Case-Based Objective Questions

The examiner report noted a change in question pattern. Topics that were earlier tested in Section C now appear in Section B. Students must prepare all topics in detail.

Problems with Dividend Growth Model (DGM)

Students were asked about limitations of the Dividend Growth Model. Valid problems include:

• Difficulty estimating cost of equity

• Ignoring share buybacks

• Assumption of constant growth

• Lack of sufficient cash to maintain growth

Students must not confuse model assumptions with model limitations. The model uses future dividends, not profits.

Investment Theories

The examiner tested precise definitions.

Common confusion included:

• Mixing technical analysis with fundamental analysis

• Confusing random walk hypothesis with efficient market theory

Students must clearly understand each definition.

Dividend Growth Model Calculation

Given:
Dividend next year = $0.60
Growth rate = 2%
Cost of equity = 11%

D2 = $0.60 × 1.02 = $0.612

P1 = $0.612 ÷ (0.11 − 0.02) = $6.80

Total value = $0.60 + $6.80 = $7.40

This was a non-standard question. Many students missed the correct structure.

Convertible Loan Notes

Redemption value:
$100 × 1.15 = $115

Conversion ratio = 20 shares

Indifference price:
$115 ÷ 20 = $5.75

Students must understand that conversion value equals redemption value at the indifference point.

Preference Share Valuation

Dividend per share:
10% × $2 = $0.20

Price per share:
$0.20 ÷ 0.08 = $2.50

Number of shares:
$20,000 ÷ $2 = 10,000

Total value:
10,000 × $2.50 = $25,000

Students must carefully interpret percentage figures.

Section C: Constructed Response Questions

Section C questions require explanation, evaluation, and structure.

Early Settlement Discount (ESD)

Company credit sales: $45,000,000
Discount rate: 1.25%
Take-up rate: 70%

Discount cost:
$45,000,000 × 70% × 1.25% = $393,750

Benefits:
Bad debt reduction = $225,000
Interest saving = $105,000

Total benefits = $330,000

Net cost = $63,750

Conclusion: The discount should not be offered.

Common mistakes:

• Using receivables instead of credit sales

• Ignoring take-up percentage

• Misreading bad debt data

Factoring Proposal

Benefits:
Bad debt saving = $675,000
Interest saving = $60,000

Costs:
Factor fee = $675,000

Net benefit = $60,000

Conclusion: Factoring is financially preferable. Students must present cost-benefit analysis clearly.

Cash Management Models

Baumol Model:

• Assumes predictable cash flows

• Calculates optimal transfer size

• Unrealistic in many situations

Miller-Orr Model:

• Handles uncertain cash flows

• Uses upper and lower limits

• More practical but complex

Answers must include advantages and limitations.

WACC Calculation: Meen Co.

Important steps:

1. Use D1 in cost of equity calculation.

2. Use IRR for redeemable debt.

3. Adjust debt interest for tax.

4. Use market values, not book values.

5. Calculate weighted average correctly.

Common errors:

• Using coupon rate

• Ignoring tax

• Using simple average

Capital Structure Theories

Traditional Theory:

• WACC decreases initially

• Optimal gearing exists

• Excessive debt increases risk

Modigliani and Miller:

• Without tax: capital structure irrelevant

• With tax: debt reduces WACC

Pecking Order Theory:

• Firms prefer internal finance

• Then debt

• Then equity

Strong answers include structure: Introduction → Theory explanation → Critical evaluation → Conclusion

Weak answers lack structure and clarity.

Examiner Tip for Essays: Use a professional structure (Intro, Body, Conclusion). Strong answers critically evaluate theories by considering real-world imperfections like bankruptcy risk and financial distress.

ACCA Guidance for Future Candidates

The examiner report not only reviews past performance but also provides direction for future improvement. It clearly outlines how students should prepare and present their answers in the ACCA FM examination.

• Practice discursive writing.

• Structure answers clearly.

• Revise theory and calculations equally.

• Prepare all syllabus areas.

• Develop explanation, not just listing.

• Focus on assumptions and implications.

The September and December 2025 examiner reports clearly show that success in ACCA FM requires conceptual clarity, structured answers, and precise calculations. Consistent practice and careful interpretation of questions are essential for strong performance.