Fundamentals of Finance: How to Pass on Your First (1st) Attempt
Table of Contents
What is “Fundamentals of Finance” under KASNEB / ATD
Fundamentals of Finance is a paper in ATD Level III under the Accounting Technicians Diploma. (KASNEB). It aims to equip candidates with the knowledge, skills, and attitudes to apply financial principles in business decision-making, including assessing sources of finance, capital budgeting, working capital decisions, risk vs. return, etc.
Syllabus / Topics Covered
Here are the main topics and subtopics you should master. These come from official KASNEB resources(ATD syllabus).
| Topic | Key Subtopics / What You Need to Know |
|---|---|
| 1. Overview of Finance | • Nature & scope of finance: Investment, Dividend, Financing, and Liquidity decisions. • Relationship between accounting and finance: Similarities and differences, Cost accounting, Financial accounting, and Management accounting • Finance functions: Routine and non-routine (managerial) • Goals/objectives of a firm: Financial and non-financial goals, and Overlaps and conflicts among the objectives. • Agency theory: Key definitions of Principal and Agent • The nature of agency relationships: Ordinary shareholders and management, Shareholders and debenture holders, Shareholders and external auditors, and Shareholders and Government • Causes of conflict in each relationship and suggested remedial measures. |
| 2. Sources of Finance | • Factors to consider when choosing a source of finance • Sources of finance: Short term, medium term, and long term. • Types of finance: Internally generated funds, and externally generated funds • The nature of each type of funds. • Characteristics of sources based on: Short term sources, medium term sources, and long term sources. • Merits and demerits for: short-term sources, medium-term sources, and long-term sources. • Sources of finance for small and medium-sized enterprises (SMEs): The SME owner, family and friends, the business angel, Trade credit, Factoring and invoice discounting, the venture capitalist: Listing and supply chain financing. • Challenges encountered by SMEs in raising capital and remedial measures: SME’s difficulties in accessing finance, Lack of infrastructure for SMEs, Low level of business R&D in the SMEs sector, and Insufficient use of information technology in SMEs • Remedies for the above challenges: Diversifying channels of financing, and Development of an SME database and credit risk analysis of SMEs, R&D tax incentives. • Utilizing information for SMEs. |
| 3. Time Value of Money | • The time value of money: Time value versus time preference for money, and the relevance of time value of money. • Estimating cash flows: Compounding techniques and Discounting techniques. • Preparation of the loan amortisation schedule: Principal amount, Repayment period, and rate of interest. |
| 4. Valuation Models for securities | • Nature and scope of valuation models. • Nature of valuation of securities: Debentures, Preference shares, and Ordinary shares. • Concept of value: Going concern value, Liquidation value, Fair value, Investment value, Intrinsic value. • Valuation of: Debentures, Preference shares, and ordinary shares. |
| 5. Cost of Capital | • Nature and scope of valuation models • Relevance of valuation of securities: Debentures, Preference shares, and Ordinary shares. • Concept of value: Going concern value, Liquidation value, Fair value, Investment value, Intrinsic value. • Valuation of: Debentures, Preference shares, and ordinary shares. • The cost of capital: Relevance of cost of capital to firms, Usage, and Factors influencing a firm’s cost of capital • Components of costs of capital: Debt, Ordinary shares and Preference shares. • The firm’s overall cost of capital: Weighted average cost of capital and weighted marginal cost of capital. • Limitations of the weighted average cost of capital |
| 6. Capital Budgeting Decisions under Certainty | • Nature and importance of capital investment decisions. • Characteristics of capital investment decisions: Large investments, Irreversible decisions, High risk, Long term effect on profitability, and Impacts of cost’s structure. • Types of capital investment decisions: On the basis of expansion, and On the basis of dependency • Capital investment cash flows: Total initial cash outlay, The total terminal cash flows, and The annual net operating cash flows. • The features of an ideal capital budgeting technique: Based on size, duration, and on risk, Based on impact to cost structure, and on difficulty • Capital budgeting techniques: Non discounted techniques: Accounting rate of return(AAR), and Payback period(PB) • Discounted techniques: Internal rate of return(IRR), Net present value( NPV), Probability index(PI), and Discounted payback period approach • Merits and demerits of each capital budgeting technique. Conflicts between NPV and IRR in ranking projects. • Practical challenges of capital budgeting in the real word: Small and large businesses, and Public and private institutions. |
| 7.Working Capital Management | • Nature and importance of working capital management. • Factors influencing working capital needs of a firms based on the: Nature of business, Size of business, Production policy., Manufacturing process/length of production cycle, Working capital cycle, Based on credit policy, and Business cycle • Working capital operating cycle: The relevance, Components of the cycle, and Computation of the cycle. • Working capital financing policies: Management of cash, Management of debtors, Management of creditors, and Management of inventory |
| 8. Risk and return concepts | • The nature of risk and return. • Distinction between risk-free and risk assets. • Sources of risk: Competitive and financial risks, Market and opportunity risks, Political and economic risks, Operational and technology risks, and Environmental risks. • Expected return: For a single asset and two assets. • Risk: Standard deviation and variance for a single asset and for two assets. • Coefficient of variation • Relationship between risk and return on investment/Risk return trade off. |
| 9. The dividend decision- making process | • Factors influencing the dividend decisions of a firm • Forms of dividend payments: Stock, cash, Property, Script, and Liquidating. • The firm’s dividend policy: Stable predictable policy, Constant pay-out ratio policy, Regular plus extra policy, and Residual dividend policy. • Dividend payment process: Declaration date, Ex-dividend date, Record date, and Payment date • Dividend theories: The MM dividend theory, The residual dividend theory, The bird-in-the hand theory, and The tax preference theory |
| 10. Islamic Finance Concepts | • History of Islamic finance • The nature of Islamic finance: Islamic banks and Islamic insurance(Takaful and Islamic financial instruments). • Principles of Islamic finance: Equity-based contracts, Sale-based contracts, Debt-based contracts, Charitable based contracts • Difference between Islamic and conventional finance. • The concept of interest(riba) and how returns are made by Islamic financial securities: Sources of Islamic finance • Islamic finance drivers: Changing nature of regulations, Technological advancements, Cross-border transactions, Growing Muslim populations, and Emerging economic growth • Regulation of Islamic finance institutions. |
| 11. Emerging Issues & Trends | • Cryptocurrency • Blockchain technology • Crowdfunding |
| Learning Outcomes | By the end of the course, you should be able to: • Identify and compare sources of finance for businesses. • Apply time value of money concepts to evaluate financial and investment decisions. • Calculate the cost of capital and use it in decision-making. • Make working capital management decisions (e.g. cash, receivables, inventory) that ensure liquidity and efficiency. • Evaluate capital investment projects using standard investment appraisal techniques. • Make basic dividend policy decisions. • Understand the basic principles and practices of Islamic finance and be able to compare them with conventional finance. • Be aware of current trends / emerging issues in finance (Exam Preparation Services) |
Exam format & what examiners look for
Exam Format
Under the current KASNEB ATD Level III syllabus, Fundamentals of Finance (AD33) is examined as:
• 50 Multiple Choice Questions (MCQs)
• Duration: 3 hours
• Computer-Based Examination (CBE)
What examiners look for
Although the examination is entirely MCQ-based, questions are designed to test:
- Knowledge and understanding
• Financial management concepts
• Sources of finance
• Financial markets
• Working capital management
• Dividend policy
• Islamic finance - Calculations: Candidates should be able to quickly compute:
• Present Value (PV)
• Future Value (FV)
• Annuities
• Net Present Value (NPV)
• Payback Period
• Accounting Rate of Return (ARR)
• Expected Return
• Cost of Debt
• Cost of Equity
• WACC - Application: Many questions are scenario-based and require selecting the most appropriate:
• Financing option
• Investment decision
• Working capital policy
• Risk management strategy - Analysis and evaluation: Examiners often test whether candidates can:
• Interpret financial results
• Compare alternatives
• Recommend the best course of action
High-yield areas for revision
- Time Value of Money
- Capital Budgeting (NPV, ARR, Payback)
- Cost of Capital (WACC)
- Sources of Finance
- Working Capital Management
- Risk and Return
- Dividend Decisions
- Financial Markets and Institutions
- Islamic Finance
- Emerging Trends in Finance
Exam strategy
With 3 hours (180 minutes) for 50 questions, you have approximately 5 3.6 minutes per question. This provides sufficient time to:
• Read questions carefully.
• Perform calculations accurately.
• Eliminate incorrect options.
• Review flagged questions before submission
How to Prepare & Pass on Your First Attempt
Here are targeted strategies:
- Get the latest syllabus & past papers: Know which version is current. Use the ATD Level III syllabus. Collect past papers + marking schemes for Fundamentals of Finance.
- Understand core concepts before doing lots of calculations: Ensure you know definitions, relationships (e.g., the relationship between risk and return), and the context (why use NPV/IRR, etc.).
- Practice numerical problems thoroughly
• Time value of money (present & future value, annuities, etc.)
• Cost of capital and WACC calculation
• Capital budgeting techniques (NPV, IRR, payback, profitability index)
• Working capital cycle problems
• Dividend policy computations if needed - Study “source of finance” broadly: Understand pros/cons of different sources (equity, debt, internally generated, etc.), especially in the Kenyan context (costs, risk, etc.).
- Do questions on Islamic finance: Don’t neglect this section; make sure you can define the terms, explain differences, know products, and understand ethical foundations.
- Keep up with emerging trends: Read recent material/articles: fintech, digital finance, behavioural finance, etc. These may show up as short essay questions or parts of questions.
- Use summary notes & cheat sheets: For key formulae (e.g. present/future value, WACC, etc.), for definitions, for the pros/cons of sources, models used in capital budgeting.
- Do full mock exams under timed conditions: Simulate the exam environment so you train for time management. Don’t spend too much time on one question(Revision4exams.com)
- Review mistakes & weak areas: After each practice or past paper, mark your own work or get it marked. Note what mistakes you make (conceptual, arithmetic, forgetting definitions, etc.), and revise those areas.
- Prepare exam day strategy
• Read through the entire paper first; plan your time (which questions will take longer).
• Start with what you are confident about to build momentum.
• Use clear headings, show workings.
• If unsure about part of a question, write what you know; partial credit is better than none.
Revision Timetables: Fundamentals of Finance
6-Week Revision Plan
| Week | Topics | Key Areas to Cover | Daily Activities | MCQ Target |
| 1 | Overview of Finance | Nature & scope of finance, finance decisions, relationship between accounting and finance, finance functions, goals of a firm, agency theory, agency conflicts and remedies | Study concepts, prepare summary notes, review agency relationships and conflicts | 50 |
| Sources of Finance | Internal vs external finance, short-, medium- and long-term finance, SME financing, venture capital, factoring, invoice discounting, financing challenges and remedies | Create comparison tables of finance sources and SME funding options | 75 | |
| 2 | Time Value of Money & Investment Decisions | Time value of money, compounding, discounting, loan amortization schedules | Practice PV, FV, annuity and amortization questions daily | 75 |
| Valuation Models for Securities | Concept of value, valuation of debentures, preference shares and ordinary shares | Solve valuation examples and summarize valuation methods | 50 | |
| 3 | Cost of Capital | Cost of debt, preference shares, ordinary shares, WACC, weighted marginal cost of capital, limitations of WACC | Practice cost of capital calculations and formula application | 75 |
| Capital Budgeting Decisions | ARR, Payback Period, NPV, IRR, PI, Discounted Payback, project ranking conflicts, practical challenges | Solve investment appraisal questions and compare techniques | 100 | |
| 4 | Working Capital Management | Working capital concepts, operating cycle, cash, debtors, creditors and inventory management | Practice operating cycle calculations and policy questions | 75 |
| Risk and Return Concepts | Risk-free and risky assets, sources of risk, expected return, variance, standard deviation, coefficient of variation, risk-return trade-off | Solve risk and return numerical questions | 100 | |
| 5 | Dividend Decision-Making Process | Dividend forms, dividend policies, payment process, dividend theories | Prepare comparison charts for dividend theories and policies | 75 |
| Islamic Finance Concepts | Islamic banking, Takaful, Islamic contracts, Riba, Islamic financial instruments, regulation | Develop summary notes on Islamic finance principles and contracts | 75 | |
| 6 | Emerging Issues & Trends | Cryptocurrency, blockchain technology, crowdfunding | Review current applications and key concepts | 50 |
| Comprehensive Revision | Review all topics, formulas, definitions and calculations | Mixed-topic MCQ practice and mock examinations | 200+ |
Final 5-Day revision schedule
| Day | Topics to Revise | Focus |
| Day 1 | Overview of Finance & Sources of Finance | Definitions, classifications, agency theory, financing sources |
| Day 2 | Time Value of Money & Valuation Models | Formulae, amortization schedules, security valuation |
| Day 3 | Cost of Capital & Capital Budgeting | WACC, NPV, IRR, ARR, Payback, PI |
| Day 4 | Working Capital Management & Risk and Return | Operating cycle, risk measures, expected return |
| Day 5 | Dividend Decisions, Islamic Finance & Emerging Trends | Dividend theories, Islamic contracts, blockchain, cryptocurrency |
Weekly Study Template
| Day | Activity |
| Monday | Learn new concepts and prepare notes |
| Tuesday | Continue topic coverage and summaries |
| Wednesday | Numerical practice and worked examples |
| Thursday | Topic review and MCQs |
| Friday | Mixed MCQ practice |
| Saturday | Intensive revision and topic tests |
| Sunday | Timed mock test and error analysis |
Target: Complete at least 700–900 MCQs over the 6 weeks and sit for 2–3 full mock examinations before the actual exam. This level of practice is typically sufficient to build both speed and accuracy for the 50-MCQ, 3-hour examination
Key to Success
The strongest candidates can:
• Understand the concept, perform the calculation, interpret the result, and choose the best option
• Since every question carries 2 marks, avoid spending too much time on a single difficult question.
• Answer all questions, as there is typically no penalty for guessing
Fundamentals of Finance: How to Pass on Your First Attempt.
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Fundamentals of Finance: How to Prepare & Pass on Your First Attempt
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Fundamentals of Finance: How to Prepare & Pass on Your First Attempt
