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How to Pass the ICAEW ACA Financial Management (FM) Exam

Updated: Mar 4, 2022


This article offers advice on how students should prepare for the Financial Management (FM) exam. Written by a prize-winning ACA tutor who has a 92% student pass rate and won multiple ICAEW prizes for his performance in the ACA exams, including one for FM, this is a must read for any student preparing for their FM exam.

How to Pass the ACA FM Exam

FM is very technical and there are a lot of new concepts which you will not have seen before. Students who try to prepare for FM by reading the ICAEW Workbook page by page will soon be bogged down by the volume of highly technical content. Instead, students should use our prize-winning approach when studying for the FM exam. This can be summarised as follows:

1. Break the ICAEW Workbook down into examinable areas

2. Understand the key technical knowledge for each examinable area and leverage the overlaps between areas to save time

3. Memorise the key technical knowledge for each examinable area

4. Practice several past exam questions on a single examinable area one after the other

Step 1: Break the Workbook down into Examinable Areas

There are three questions in the FM exam: Financing, Hedging and either an Investment Appraisal or Business Valuation question. Therefore, there are four examinable areas and you should treat the exam as if it were a number of ‘mini-exams’, one on each area. This makes the task less daunting as you now only have a handful of chapters to learn for each ‘mini-exam.’

Furthermore, each area can then be subdivided. For example, Investment Appraisal can then be subdivided into project appraisal, replacement analysis and capital rationing. Hedging can be subdivided into hedging interest rate risk, hedging foreign exchange risk and hedging other risks (share investment and cryptocurrencies).

Step 2: Understand the Essential Technical Knowledge for Each Examinable Area and Leverage the Overlaps Between Areas to Save Time

Whilst some of the topics seem incredibly complex (the algebraic formulas don’t help), the principles are actually very logical and easy to understand. Take financing as an example, a company needs to raise money to start / expand the business. The company can either issue shares to equity investors (shareholders) or issue debt to debt investors (lenders). Equity investors take more risk than debt investors because they have no legal right to their money back nor do they have a right to a return on the money invested (interest payments are compulsory, dividends aren’t). Therefore, equity investors require a higher return on the money they invested to compensate them for the additional risk. Having to pay a higher return to equity investors makes equity finance more expensive for a company compared with debt finance.

We make our FM tuition engaging by grouping interrelated topics together, using diagrams with practical examples and working through lots of exam questions, rather than reading out pages and pages of abstract text. We have included a link to one of our classes at the end of the article to demonstrate what we mean.

It is also important to appreciate areas which have substantial overlap as this will cut down on your learning time. For example, you can calculate the value of a project by discounting the project’s future cash flows to their present value. You can also calculate the value of a company as a whole by discounting all the future cash flows to their present value. Whilst the former is used to decide whether to proceed with a new project and the latter used to value shares in a company, the technical principles are the same. In both situations, exam questions often require you to perform sensitivity analysis, consider real options and discuss shareholder value analysis.

Step 3: Memorise the Key Technical Knowledge for Each Examinable Area

Given the highly technical nature of finance, there is a lot of technical learning for the exam. In order to simplify these rules to improve learning efficiency, we summarise the essential knowledge for each topic into concise Learning Notes.

The best way to memorise the content so that it is available to you in the exam room is to read and understand the concepts for each topic and then test yourself by reproducing the content on a blank page, as this will force you to actively recall the information. Taking hedging foreign exchange risk as an example, our FM Materials (below) summarise the key content for each derivative, namely:

  • How to use the derivative to hedge the risk faced by the company

  • How to calculate the movement on the derivative and the underlying item to assess the effectiveness of the hedge

  • The advantages and disadvantages of using that derivative to hedge risk (a very common and repetitive exam requirement)

Having understood how each derivative can be used to hedge foreign exchange risk, you can test yourself be seeing if you can reproduce the above for each derivative. Keep re-reading and re-testing yourself until you can reproduce everything in full.

Step 4: Practice Several Past Exam Questions on a Single Examinable Area One After the Other

After teaching our students the optimal exam technique for a particular type of FM exam question, we send our students away to practice lots of questions on that examinable area one after the other. For example, after learning how to hedge foreign exchange risk, you should practice lots of past exam questions on hedging foreign exchange risk. This has the following benefits:

  • It actively tests the technical content you have memorised, improving retention

  • It enables you to apply the prize-winning exam technique demonstrated during tuition

  • It familiarises you with how the examiners structure questions on the topic

  • It enables you to identify patterns in how the topic is examined

  • It enables you to identify weakness areas so that you can focus your technical learning

  • It familiarises you with the ICAEW exam software

  • It enables you to improve your speed so that you don’t exceed your time allocation

Our FM Master Plan categorises all the past exam questions by topic to make it easy to practice lots of questions on the same topic (foreign exchange hedging is an easy one to practice because it is in nearly every past exam). ​

It is important to appreciate that FM questions often require a discursive response in addition to calculations. The types of discursive requirement are very repetitive and by practicing lots of questions you will notice that the same points are included in the answers. Our Learning Notes include lists of the points you should consider making for each discursive topic. Below is a small example from the Financing section of our FM Materials.

Once you are scoring 70% on each area you should then start sitting full mock exams under strict exam conditions so that you can recreate the exam experience in full.

Need Help Passing the ACA FM Exam?

Our FM video course focuses on the most frequently examined technical content and demonstrates the optimal exam technique for each type of FM exam question. Sample classes from the course and our FM Materials can be found here.

About the Author

Kieran Doe is a Senior ACA Tutor at ACA Masters. Kieran won ICAEW prizes for his performance in Financial Accounting and Reporting, Tax, Financial Management, Audit, Business Strategy and Case Study. This is in addition to winning several prizes at university for various Accounting, Business, Management and Economics subjects.

Kieran’s tuition is based around the learning techniques and exam strategies which enabled him to win prizes for all the subjects he teaches. Under his guidance, several of his ACA students have also won ICAEW prizes.

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