AFM frequently asked questions (FAQs)

Much of the initial material in Advanced Financial Management (AFM) is covered in the Applied Skills Financial Management (FM) exam. AFM covers the more advanced components of the syllabus and contains topics which reflect the changing nature of financial markets and the developing needs of companies.

What is the main focus of the exam?

The exam is set at Masters level. As such, the main focus is not just on carrying out complex calculations but also on their relevance to the real world or the question scenario. Demonstration of applied technical knowledge, but also professional skills is what the examining team are looking for.

Are formulae such as NPV and IRR available in the spreadsheet tool in a computer based exam?

The NPV, IRR and also MIRR functions are available for use in the spreadsheet tool in the examination.  Where relevant, you will be given a separate spreadsheet space which will calculate Black Scholes option pricing model values from inputs which you specify. You can practice using these in the spreadsheet tool within the practice platform.

Will I be told which answer option to use in a computer based exam?

The choice of answer option is up to you. Where detailed calculations are required, it makes sense for these to be done in the spreadsheet. The non-calculation parts of the report in question 1 should be done in the word processing tool, in order to maximise the professional marks awarded.

How does dividend capacity relate to free cash flows?

There is the trite point that dividends are paid out of cash rather than profit and it is usually the availability of the former which constrains what can be distributed.

However, the logic of the free cash flow to equity model and the use of free cash flow after net reinvestment as a proxy for the distributable element of return to investors, is based upon the original concept of income first proposed by Hicks that what is distributable is what can be taken out and leave the value of the business unimpaired.

Value in this sense is taken to be the present value of the future cash flows of the business so what can be distributed is the change in the present value of future cash flows.

The free cash flow to equity model in valuation works on the same principle as the dividend valuation model in that we seek to determine the free cash flow, after net reinvestment sufficient to maintain the operating capacity of the business, which could be available for distribution to the equity investors.

The legal definition of what may be distributed is almost always considerably more than what should be paid out in cash if the business is to maintain the operating capacity and hence the value of the business.

There may be alternative answers to many of the questions, why are they not included in the model answers?

Given the advanced nature of the subject, there will be different interpretations about what is a correct answer. The marking team is diligent in reviewing the range of possible answers and making sure that candidates are given credit even though their answer may not fully accord with the model answer.

The process of answer generation and review goes through many steps and only those solutions which are justifiable technically or theoretically are published. Answer variants which would not be expected of a reasonably prepared candidate are not published although the answers may contain a depth of detail and explanation which would not be achievable under examination conditions.

What are the core areas of the AFM syllabus?

All areas within the syllabus and study guide areas are considered core areas of the exam and could appear in either Section A or Section B of the exam.  Every exam will have question(s) with a focus on syllabus sections B (Advanced investment appraisal) and E (Treasury and advanced risk management techniques).


Yes, credit will be given as long as the conclusion makes sense based on the figures provided. It is important that candidates give full workings and present these well as credit will be given for the approach taken, even where an early error results in the whole calculation being incorrect. If the approach is correct, the majority of the marks can be awarded.

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