ACCA AFM Business Valuation Methods: Exam Guide 2026
ACCA AFM Business Valuation Methods: Complete Exam Guide (DCF, P/E, Asset-Based)
ACCA AFM business valuation methods include net asset valuation, P/E ratio earnings-based valuation, the dividend valuation model (Gordon Growth Model), and free cash flow to equity (FCFE) — with the ACCA examiner confirming that "the free cash flow model has been tested more than any other method." This definitive guide covers every valuation technique on the AFM syllabus, with method-by-method calculations, examiner-flagged errors from the Kampai Co (MJ25) and Halstock Co (SD25) exam sittings, synergy calculations, and a comparison framework for choosing the right approach.
💡 Key Takeaway
- Business valuation is the most frequently tested single topic in the history of ACCA AFM, appearing in nearly every Section A or Section B question across exam sittings.
- The AFM examiner categorises valuation methods into two groups: pre-acquisition (net assets, dividend valuation, P/E ratio, free cash flows) and post-acquisition (bootstrapping, combined valuations with synergies, combined FCF).
- In the MJ25 Kampai Co question, common errors included deducting interest when calculating FCF to the firm, failing to deduct debt from total company value, and mishandling one-off cash flows vs annual synergies.
- In the SD25 Halstock Co question, candidates incorrectly included growth in the perpetuity calculation, failed to adjust for the 15:85 debt/equity ratio, and used the wrong Marnhall valuation figure ($145.8m instead of $160m).
- Mastering the discussion and recommendation — not just the calculations — is what earns the 4–7 professional skills marks that separate passing from failing.
📋 Table of Contents
- How Does AFM Categorise Valuation Methods?
- Net Asset Valuation (Asset-Based Approach)
- P/E Ratio Method (Earnings-Based Approach)
- Dividend Valuation Model (Gordon Growth Model)
- Free Cash Flow Valuation (FCFF and FCFE)
- Post-Acquisition Valuation and Synergy Calculations
- When to Use Each Method — Comparison Table
- Examiner-Flagged Errors: Kampai Co and Halstock Co
- How to Approach a Valuation Question in the AFM Exam
- Recommended Study Materials
- About the Author
In our experience coaching ACCA students at Eduyush, business valuation is the topic where the gap between understanding the theory and executing under exam pressure is widest. Students tell us they know the formulas but freeze when the question mixes pre-acquisition FCF with post-acquisition bootstrapping, synergy splitting, and a discussion requirement. This guide is built from that feedback — and from the specific errors flagged in the March/June 2025 and September/December 2025 examiner reports.
If you're building your valuation foundations, start with our ACCA FM Valuation Guide covering EMH, CAPM, and basic share pricing models. AFM takes those foundations and adds multi-method comparisons, acquisition scenarios, synergy quantification, and the professional skills marks that determine pass or fail.
How Does AFM Categorise Valuation Methods?
The ACCA AFM syllabus, set by the Association of Chartered Certified Accountants, divides business valuation into two broad categories as described in ACCA's own published technical article: pre-acquisition valuations (finding the standalone equity value of a target company) and post-acquisition valuations (calculating the combined value and splitting gains between buyer and seller shareholders).
📖 AFM Valuation Framework
Pre-acquisition methods (What is the company worth today?)
- Net asset valuation
- Dividend valuation model (Gordon Growth Model)
- Earnings model (P/E ratio or earnings yield)
- Net assets + calculated intangible value (CIV)
- Free cash flows (FCF) — FCFF and FCFE
Post-acquisition methods (What is the combined entity worth?)
- Bootstrapping — applying the buyer's P/E to combined earnings
- Combined pre-acquisition values + present value of synergies
- Combined free cash flows discounted at the relevant rate
The ACCA examiner notes that "past questions have, in my view, clearly indicated which method should be used" — meaning the scenario data will point you towards the correct approach. However, most questions require more than one method to be applied: a pre-acquisition valuation using FCF followed by a post-acquisition valuation using bootstrapping, for example. The Kampai Co (MJ25) question tested exactly this combination.
Net Asset Valuation (Asset-Based Approach)
Net asset valuation (NAV) estimates equity value as the total value of a company's assets minus its total liabilities. While conceptually simple, the AFM syllabus tests three distinct bases on which assets can be valued — and the choice between them affects the final figure significantly.
Three Asset Valuation Bases
📐 Net Asset Valuation Formula
Equity Value = Total Assets (at chosen valuation basis) − Total Liabilities
Three valuation bases:
- Book value (historical cost): Uses statement of financial position values. Simplest but least reliable — assets may be carried at outdated historical costs that don't reflect economic reality. Represents the minimum floor value.
- Net realisable value (NRV): The amount assets would fetch if sold on the open market, minus selling costs. Appropriate for break-up or liquidation valuations. Typically produces a lower value than replacement cost.
- Replacement cost: The cost to replace each asset with an equivalent asset of similar age and condition. Appropriate for going concern valuations where the buyer intends to continue operations. Typically produces the highest figure.
When to Use Net Asset Valuation
- Asset-heavy businesses: Property companies, mining companies, investment trusts — where the balance sheet reflects the majority of the firm's value.
- Break-up valuations: When the company is being wound up or its parts sold individually.
- Floor value: As a minimum benchmark to compare against income-based methods.
- Not appropriate for: Service companies, technology firms, or any business where value is driven primarily by intangible assets, future earnings, or growth — because NAV ignores future earning potential entirely.
At Eduyush, we advise students that NAV is rarely the primary method in an AFM exam question — it's more likely to appear as a secondary valuation or a discussion point ("discuss why the board rejected the net asset valuation in favour of an earnings-based approach"). When it does appear, the examiner expects you to state which basis you're using and why it's appropriate for the scenario.
P/E Ratio Method (Earnings-Based Approach)
The price-to-earnings (P/E) ratio method values equity by multiplying a company's earnings (profit after tax) by an appropriate P/E multiple. In AFM, this method is used in two distinct contexts: pre-acquisition (estimating the standalone value of an unlisted target) and post-acquisition (bootstrapping — applying the buyer's P/E to combined earnings to show value creation).
📐 P/E Ratio Valuation Formulas
Pre-acquisition:
Equity Value = Earnings (PAT) × Appropriate P/E Ratio
Post-acquisition (Bootstrapping):
Combined Equity Value = (Buyer's Earnings + Target's Earnings) × Buyer's P/E Ratio
For unlisted companies:
Use a proxy P/E from a comparable listed company, then apply a discount of 20–30% to reflect the lack of marketability and liquidity of unlisted shares.
Pre-Acquisition P/E Valuation
When valuing an unlisted target, the challenge is finding an appropriate P/E ratio. Since there is no market price for the target's shares, the examiner expects you to use the buyer's P/E ratio (or a proxy from a comparable listed company) and then consider whether a discount should be applied. A discount reflects the fact that unlisted shares are less liquid and carry higher information risk.
Post-Acquisition P/E (Bootstrapping)
Bootstrapping occurs when a company with a higher P/E ratio acquires a company with a lower P/E ratio. If the buyer can maintain its P/E multiple after the acquisition, the combined earnings are valued at the buyer's higher multiple — creating an apparent increase in equity value even without any operational synergies. This is a key concept the examiner tests frequently.
In the Kampai Co (MJ25) exam question, candidates were required to calculate Kampai's P/E ratio and then use it to determine the post-acquisition value of Skal Co. The examiner reported that this part was "generally done well" — but candidates who earned full marks were those who also discussed whether Kampai could realistically maintain its P/E ratio after absorbing a lower-rated company.
Examiner-Flagged Errors (P/E Method)
- Kampai Co MJ25: Candidates failed to adjust Skal Co's post-acquisition earnings for the interest cost and annual synergies of $4.8m when calculating post-acquisition profit after tax.
- Kampai Co MJ25: The one-off cash flow increase of $42.3m from factory closure was often treated as an annual synergy rather than a one-time gain, or was omitted entirely.
- Kampai Co MJ25: A "significant minority" assumed the stated premium percentages (25% and 33%) were targets to calculate rather than benchmarks to evaluate their own results against.
Dividend Valuation Model (Gordon Growth Model)
The dividend valuation model (DVM), also known as the Gordon Growth Model when constant growth is assumed, values a company's equity as the present value of all future expected dividend payments, discounted at the shareholders' required rate of return (cost of equity).
📐 Dividend Valuation Formulas
Zero growth (constant dividend):
P₀ = D₀ ÷ kₑ
Constant growth (Gordon Growth Model):
P₀ = D₀(1 + g) ÷ (kₑ − g)
Variable growth (multi-stage):
Calculate the PV of dividends individually during the high/variable growth phase, then apply the Gordon Growth Model to the constant-growth phase and discount back.
Where: P₀ = current share price, D₀ = current dividend, kₑ = cost of equity, g = constant dividend growth rate.
Critical condition: kₑ > g (the cost of equity must exceed the growth rate, or the model is mathematically invalid).
When to Use the Dividend Valuation Model
- Minority shareholdings: Where the shareholder has no control over dividend policy, dividends are the only cash flow they actually receive — making DVM the most appropriate method.
- Stable, dividend-paying companies: Mature companies with a consistent dividend track record and predictable growth.
- Not appropriate for: Companies that don't pay dividends, companies reinvesting heavily in growth (tech firms, startups), or controlling interest valuations where the buyer can change dividend policy.
Estimating Growth (g)
AFM expects you to estimate the growth rate using one of two approaches:
- Historical dividend growth: g = (Dn / D0)1/n − 1, where Dn is the most recent dividend and D0 is the dividend n years ago.
- Gordon's growth approximation (retention model): g = b × r, where b = retention ratio (1 − payout ratio) and r = return on equity (ROE). This approach links growth directly to the company's reinvestment rate.
We've found at Eduyush that candidates lose marks by applying the Gordon Growth Model mechanically without stating its limitations in the discussion — particularly the assumption that dividends will grow at a constant rate indefinitely, which the examiner consistently expects to be challenged.
Free Cash Flow Valuation (FCFF and FCFE)
Free cash flow valuation is confirmed by the ACCA examiner as "the most tested method" in AFM. The approach values a company by discounting its projected future free cash flows — either to the firm as a whole (FCFF) or to equity shareholders specifically (FCFE). Getting this calculation right — and avoiding the specific errors the examiner flags repeatedly — is the single most important skill for the AFM exam.
FCFF vs FCFE: Which to Use
📖 FCFF vs FCFE
Free Cash Flow to the Firm (FCFF): Cash available to ALL providers of capital (debt + equity). Discount at WACC to get enterprise value. Then subtract debt to find equity value.
Free Cash Flow to Equity (FCFE): Cash available to EQUITY holders only (after debt servicing). Discount at cost of equity to get equity value directly.
Rule of thumb: Use FCFF when the question provides WACC or when the capital structure is changing. Use FCFE when the question specifically asks for equity value and provides cost of equity.
FCFF Calculation Steps
📐 Free Cash Flow to the Firm (FCFF)
| Operating Profit (EBIT) | X |
| Less: Tax on operating profit | (X) |
| Add: Non-cash charges (depreciation, amortisation) | X |
| Less: Capital expenditure | (X) |
| Less: Increase in working capital | (X) |
| = Free Cash Flow to the Firm (FCFF) | X |
Enterprise Value = PV of forecast FCFF + PV of terminal value
Terminal Value = FCFFn × (1 + g) ÷ (WACC − g)
Equity Value = Enterprise Value − Market Value of Debt
FCFE Calculation Steps
📐 Free Cash Flow to Equity (FCFE)
| Profit After Tax (PAT) | X |
| Add: Non-cash charges (depreciation, amortisation) | X |
| Less: Capital expenditure | (X) |
| Less: Increase in working capital | (X) |
| Add: Net new borrowing (or Less: net debt repayment) | X/(X) |
| = Free Cash Flow to Equity (FCFE) | X |
Equity Value = PV of forecast FCFE (discounted at cost of equity, kₑ)
Terminal Value and the Perpetuity with Growth
Most AFM FCF questions require you to forecast cash flows for 3–5 years and then calculate a terminal value assuming a constant growth rate beyond that point. The examiner notes it was "encouraging to see that most candidates seem to be able to confidently calculate the present value of a perpetuity with growth." However, the SD25 Halstock Co question revealed that many candidates still make errors when the question states there is no growth beyond a certain year.
In Halstock Co, the question clearly stated "all variables after year 4 will remain the same as year 4" — meaning zero growth. Yet candidates incorrectly applied a growth rate in the perpetuity formula. Additionally, many forgot to discount the year 5+ perpetuity calculation back to present value using the year 4 discount factor.
Post-Acquisition Valuation and Synergy Calculations
Post-acquisition valuation is the area that consistently differentiates strong candidates from weak ones. The examiner expects you to calculate the combined value of two companies, incorporate synergies, and then determine how the gain is split between the buyer's and seller's shareholders. Both the Kampai Co (MJ25) and Halstock Co (SD25) questions tested this skill — and both examiner reports highlighted it as problematic.
Bootstrapping (P/E Ratio Post-Acquisition)
📐 Bootstrapping Calculation Steps
- Calculate the buyer's current P/E ratio: Market Cap ÷ Profit After Tax
- Calculate combined earnings: Buyer's PAT + Target's PAT (+ annual synergies if applicable)
- Apply buyer's P/E to combined earnings: Combined Equity Value = Combined Earnings × Buyer's P/E
- Determine number of shares post-acquisition (for share-for-share offers)
- Calculate new share price and percentage gain for each group of shareholders
Combined Value + Synergies Method
The alternative post-acquisition method involves adding the pre-acquisition values of both companies and then adding the present value of expected synergies. This is the approach tested in the Halstock Co (SD25) question.
📐 Synergy-Based Post-Acquisition Value
- Calculate PV of combined free cash flows (Buyer + Target)
- Add the PV of after-tax synergies
- Adjust for debt/equity ratio to extract the equity portion
- Equity Value = Combined Entity Value × Equity Proportion
- Gain to Buyer = Combined Equity Value − Offer Price − Buyer's Pre-Acquisition Value
- Convert to percentage gain: Gain ÷ Buyer's Pre-Acquisition Value × 100
Splitting Gains Between Buyer and Seller Shareholders
This was specifically flagged by the SD25 examiner as "poorly answered." The method is straightforward but requires careful logic:
⚠️ Gain Split — The Halstock Co Method
Total gain created = Combined equity value − (Buyer pre-acquisition value + Target pre-acquisition value)
Gain to seller shareholders = Offer price − Target's pre-acquisition value
Gain remaining for buyer = Total gain − Gain to seller
% gain to buyer's shareholders = Gain to buyer ÷ Buyer's pre-acquisition value × 100
The Kampai Co MJ25 examiner provided this worked example:
Gain to Skal Co = ($8 × 40m shares) − $263.8m = $56.2m
Gain remaining for Kampai = $174.5m − $56.2m = $118.3m
% gain to Kampai shareholders = $118.3m ÷ $900m = 13.1%
A critical error in Halstock Co was that candidates used the wrong value for Marnhall. The owner stated he would accept $160m, but the estimated market value was $145.8m. Many candidates used $145.8m instead of $160m as the offer price — losing marks because they failed to read the scenario carefully.
When to Use Each Method — Comparison Table
The discussion marks in AFM valuation questions (typically 4–7 marks) require you to explain why you chose a particular method and its limitations. This comparison table provides the decision framework the examiner expects.
| Method | Best For | Discount Rate | Key Limitation | AFM Exam Use |
|---|---|---|---|---|
| Net Asset Valuation | Asset-heavy companies, break-up/liquidation scenarios | N/A | Ignores future earnings and intangible assets | Floor value or secondary benchmark |
| P/E Ratio | Quick relative valuation; post-acquisition bootstrapping | N/A (market-based multiple) | P/E may not be sustained post-acquisition; proxy P/E may not match target's risk | Bootstrapping in M&A; valuing unlisted targets |
| Dividend Valuation (DGM) | Stable, dividend-paying companies; minority shareholders | Cost of equity (kₑ) | Assumes constant growth forever; useless for non-dividend companies | Less common in AFM; more tested at FM level |
| FCFF (Free Cash Flow to Firm) | Whole-company valuations; M&A; changing capital structures | WACC | Highly sensitive to growth and discount rate assumptions | Most tested method — appears in nearly every sitting |
| FCFE (Free Cash Flow to Equity) | Direct equity valuation; stable capital structure | Cost of equity (kₑ) | Requires stable debt policy; sensitive to same assumptions as FCFF | Frequently tested alongside FCFF |
| Bootstrapping | Post-acquisition value; percentage gains to shareholders | N/A (P/E-based) | Assumes buyer's P/E is maintained — may not hold if target dilutes quality | M&A questions requiring gain split analysis |
Examiner-Flagged Errors: Kampai Co (MJ25) and Halstock Co (SD25)
The 2025 examiner reports provide specific, actionable insights into where candidates lost marks on business valuation questions. These are not generic warnings — they are exact errors from real exam sittings.
Kampai Co — March/June 2025 (Section A, 50 marks)
Kampai Co was a listed company acquiring Skal Co, an unlisted company. The question combined FCFF pre-acquisition valuation with P/E-based post-acquisition valuation and a gain-splitting analysis across cash and share-for-share offers.
- Deducting interest when calculating FCFF: Many candidates deducted the interest cost from operating profit when calculating free cash flows to the firm. FCFF must exclude interest — it's captured in WACC.
- Failing to subtract debt from entity value: After discounting FCFF at WACC to get enterprise value, candidates forgot to deduct the value of debt to arrive at equity value.
- Mishandling synergies: The $4.8m annual synergies needed to be added to the post-acquisition profit calculation. The $42.3m one-off cash flow from factory closure was either treated as an annual synergy or omitted entirely.
- Confusing premiums with targets: A "significant minority" treated the stated 25% (cash offer) and 33% (share-for-share) premiums as amounts to calculate rather than benchmarks to compare against their own results.
- Failing to split gains evenly in the share-for-share offer: The examiner noted "too many candidates failed to split the gain evenly and too many candidates were unable to correctly estimate the number of Kampai shares that would need to be issued."
- Weak discussion: Candidates described their calculations instead of evaluating them. The examiner specifically noted candidates failed to "compare their results with the desired premiums given in the scenario" and failed to consider generic acquisition knowledge (e.g., cash offers give certainty, may create CGT issues).
Halstock Co — September/December 2025 (Section B, 25 marks)
Halstock Co was a listed fitness club acquiring Marnhall, an unlisted company. The question required candidates to calculate percentage shareholder gains with and without synergies.
- Incorrect perpetuity with growth: The question stated "all variables after year 4 will remain the same as year 4" — meaning zero growth. Candidates incorrectly applied a growth rate in the perpetuity formula.
- Not discounting the perpetuity back to PV: Many calculated the year 5+ perpetuity correctly but forgot to multiply by the year 4 discount factor to bring it to present value.
- Adding revenue to operating cash flow: Some candidates added revenue as additional income on top of the post-tax operating cash flow, producing "huge percentage gains to Halstock."
- Ignoring the debt/equity ratio adjustment: The combined cash flow value needed to be adjusted by the 15:85 debt/equity ratio to extract the equity value. Many candidates skipped this step.
- Mishandling synergies: The $18.6m synergies were stated as the present value of after-tax synergies — yet candidates recalculated them across multiple years. Others ignored synergies entirely, calculating only one gain figure.
- Wrong Marnhall value: The owner stated $160m as his price. The estimated market value was $145.8m. Many candidates used $145.8m instead of the $160m offer price when calculating Halstock's gain.
- Only calculating absolute gain: The question asked for a percentage gain, but some candidates only provided the absolute dollar figure without converting.
How to Approach a Valuation Question in the AFM Exam
Drawing from the 2025 examiner reports and our coaching experience at Eduyush, here is the systematic approach we recommend for any AFM valuation question.
🎯 6-Step Valuation Question Framework
- Read requirements first, then the scenario. Identify which valuation method(s) the question is testing. Look for data clues: WACC given → FCFF; cost of equity given → FCFE or DGM; P/E ratio given → earnings-based; asset data given → NAV.
- Separate pre-acquisition from post-acquisition. If the question involves an M&A scenario, the pre-acquisition value is typically calculated first, then a post-acquisition value with synergies.
- Layout calculations clearly with labels. The examiner specifically praised candidates who "laid out their previous calculations well with appropriate headings" — because later requirements pull forward earlier figures. Poor layout = lost marks on later parts.
- Check the FCFF/FCFE distinction rigorously. Before you start: Is interest included or excluded? Is the discount rate WACC or cost of equity? Do you need to subtract debt to get equity value?
- Handle synergies with care. Distinguish between annual synergies (which affect ongoing cash flows or earnings) and one-off synergies (which are added separately). Check whether the synergy figure is pre-tax or post-tax, and whether it's already a present value or needs discounting.
- Use your numbers in the discussion. The examiner states that "generic bullet-point lists about advantages and disadvantages don't earn marks." Instead: "Based on my calculations, the gain to Kampai shareholders is 13.1%, which falls below the desired 25% premium, suggesting the cash offer may not be acceptable..."
"Vicky Sarin, CA and founder of Eduyush, notes: 'In our experience coaching 500+ AFM candidates, the students who pass the valuation question are not necessarily the ones who get every number right — they're the ones who label their workings clearly, state their assumptions explicitly, and tie their discussion back to the scenario data. The examiner has said this in every report for the last five years, and it's still the single biggest gap between passing and failing candidates.'"
Valuation Study Order (4-Week Plan)
📅 Recommended Study Plan for AFM Valuation
Week 1: Pre-Acquisition Methods (8–10 hours)
- Net asset valuation (book value, NRV, replacement cost)
- P/E ratio method — pre-acquisition valuation of unlisted companies
- Dividend valuation model — Gordon Growth Model, variable growth
- Practice: 2–3 FM-level valuation questions to confirm foundations
Week 2: Free Cash Flow Valuation (10–12 hours)
- FCFF calculation — from operating profit, excluding interest
- FCFE calculation — from PAT, including debt adjustments
- Terminal value — perpetuity with growth, discounting back to PV
- Practice: Work through the Venitra/Borgonni example from ACCA's technical article
Week 3: Post-Acquisition and Synergies (10–12 hours)
- Bootstrapping — applying buyer's P/E to combined earnings
- Combined value + synergies method
- Gain splitting between buyer and seller shareholders
- Practice: Kampai Co (MJ25) and Halstock Co (SD25) past papers
Week 4: Integration and Discussion Skills (8 hours)
- Mixed questions requiring multiple valuation methods
- Discussion writing: comparing methods, challenging assumptions
- Timed practice: complete a 50-mark Section A question in 90 minutes
Recommended Study Materials for AFM Valuation
Valuation is a topic where passive reading fails — you need to practise full calculations under timed conditions until the process becomes automatic. Here's what we recommend.
📚 Study Materials
- BPP ACCA AFM Coursebook & Exam Kit — Covers every valuation method with structured worked examples. The exam kit contains past paper questions organised by topic. Available at Eduyush with free shipping in India and up to 50% off UK pricing.
- BPP ACCA Strategic Professional ECR (Online Course) — Video lectures walking through FCFF, bootstrapping, and gain-splitting calculations step by step. Includes mock exams and CBE practice platform.
- ACCA Global Technical Article: Business Valuations — Written by the examiner, includes the Borgonni/Venitra worked example covering FCFF, bootstrapping, and shareholder gain calculations. Essential pre-exam reading.
- ACCA Examiner Reports (MJ25 and SD25) — Available free on ACCA Global. Read the Kampai Co and Halstock Co sections to understand exactly where candidates lost marks.
Browse all ACCA AFM study materials on Eduyush, or explore the complete range of BPP ACCA Strategic Professional books.
For Indian students preparing for ACCA alongside their CA qualifications, the business valuation content in AFM has extensive overlap with Strategic Financial Management (SFM) in CA Final — particularly DCF analysis, P/E valuation, and M&A gain calculations. This makes AFM preparation directly transferable to your CA exams and highly valued by Big 4 firms (Deloitte, PwC, EY, KPMG) for corporate finance and transaction advisory roles.
For a broader understanding of the AFM syllabus structure and how valuation fits within it, see our AFM Full Form guide. For common mistakes across all AFM topics (not just valuation), visit our Top 10 ACCA AFM Mistakes guide. And for exam technique tips, see How to Pass ACCA AFM.
Ready to master AFM valuation? Browse our ACCA AFM course materials at regional pricing →
Frequently Asked Questions
What are the main business valuation methods in ACCA AFM?
The five main pre-acquisition methods are net asset valuation, P/E ratio (earnings-based) valuation, dividend valuation model (Gordon Growth Model), free cash flow to the firm (FCFF), and free cash flow to equity (FCFE). Post-acquisition methods include bootstrapping, combined valuations with synergies, and combined free cash flow models. The ACCA examiner confirms that the free cash flow model is tested more than any other method.
What is the difference between FCFF and FCFE in AFM?
FCFF (Free Cash Flow to the Firm) represents cash available to all capital providers and is discounted at WACC to find enterprise value — you then subtract debt to get equity value. FCFE (Free Cash Flow to Equity) represents cash available only to equity holders and is discounted at the cost of equity to give equity value directly. The key rule: never deduct interest when calculating FCFF, as interest is captured in WACC.
How do you value a company using the P/E ratio in ACCA AFM?
For pre-acquisition: Equity Value = Earnings (Profit After Tax) × Appropriate P/E Ratio. For unlisted companies, use a proxy P/E from a comparable listed company and consider applying a 20–30% discount for illiquidity. For post-acquisition (bootstrapping): apply the buyer's P/E to the combined earnings of both companies to show apparent value creation when a high-P/E buyer acquires a low-P/E target.
What are the most common valuation mistakes in AFM exams?
Per the 2025 examiner reports: (1) Deducting interest when calculating FCFF, (2) forgetting to subtract debt from enterprise value to get equity value, (3) applying a growth rate in the terminal value perpetuity when the question states zero growth, (4) not adjusting for the debt/equity ratio when extracting the equity portion of combined value, (5) using the wrong target company value (estimated market value vs actual offer price), and (6) providing generic discussions instead of scenario-specific analysis tied to calculated figures.
How do you calculate synergy gains in an AFM acquisition question?
Calculate the combined equity value (from FCFF or bootstrapping), add the present value of after-tax synergies, adjust for the debt/equity ratio, then subtract both the buyer's pre-acquisition value and the offer price. This gives the gain to the buyer's shareholders. Convert to a percentage by dividing by the buyer's pre-acquisition value. Always check whether synergies are stated as annual amounts or already as a present value.
Popular posts
Featured product
Featured product
ACCA Books
Get 50% off original BPP & KAPLAN ACCA books. Study smarter, save bigger today!
BPP Online lectures
BPP online lectures at India pricing – under £55/subject. Learn smart, pay less.
FAQs
How can I prepare for the ACCA exams?
There are several ways to prepare for the ACCA exams, including studying the exam syllabus and practicing past exam questions. You can also attend review courses or hire a tutor to help you prepare. It's also a good idea to create a study schedule and stick to it, and to take breaks and pace yourself during your studies.
What should I do if I fail an ACCA exam?
If you fail an ACCA exam, you will need to re-register and pay the exam fees again. You may also want to consider reviewing the exam syllabus and studying more before attempting the exam again. It's also a good idea to talk to your tutor or mentor for guidance and to get feedback on where you may have gone wrong.
How many attempts do I have to pass the ACCA exams?
There is no limit to the number of times you can attempt the ACCA exams, but you will need to pay the exam fees each time you register. It's a good idea to carefully review the exam syllabus and consider seeking additional help if you are struggling to pass the exams after multiple attempts.
How often are ACCA exams held?
ACCA Exams are held four times a year for skill level and strategic level exams. These are held every quarter
March, June, September and December
What is the difference CA and ACCA in india?
The CA (Chartered Accountant) qualification is offered by the Institute of Chartered Accountants of India (ICAI). The ACCA qualification is offered by the Association of Chartered Certified Accountants (ACCA).
The CA qualification has been in existence for over 150 years, and is a globally recognised qualification. The ACCA qualification has been in existence for over 100 years, and is also a globally recognised qualification.
The CA qualification is available in India only, while the ACCA qualification is available in over 180 countries.
How many marks should be scored in the ACCA subjects?
The ACCA subjects are assessed on a 100-point scale. The pass mark is 50 points. A score of 60 or more is required to achieve the grades of distinction, credit, and merit.
Is Eduyush.com an ACCA RLP?
Yes. Eduyush (Yush Consultants) is anACCA Registered Learning Partnerfor DipIFR online classes. Verify our RLP status on ACCA's official directory →
Which is the hardest ACCA paper?
The hardest ACCA paper is the F5 performance management paper. This is because it requires a detailed knowledge of financial accounting and management accounting in order to pass.
Other papers that are difficult include the F7 financial reporting paper and the P2 advanced auditing and assurance paper. However, all of the ACCA papers are challenging, so it is important to thoroughly prepare for each one before sitting the exam.
Leave a comment