ExpertEasy2 marksMultiple Choice
ACCA · Question 01 · Financial Management Environment
Section A
GlobalHealth is a non-governmental organization (NGO) providing medical supplies to remote regions. Unlike commercial entities, GlobalHealth does not aim to maximize shareholder wealth.
Which of the following frameworks is most appropriate for assessing the financial management performance of GlobalHealth?
Section A
GlobalHealth is a non-governmental organization (NGO) providing medical supplies to remote regions. Unlike commercial entities, GlobalHealth does not aim to maximize shareholder wealth.
Which of the following frameworks is most appropriate for assessing the financial management performance of GlobalHealth?
Answer options:
A.
Maximization of Earnings Per Share (EPS) and dividend yield.
B.
Value for Money (VFM) framework focusing on Economy, Efficiency, and Effectiveness.
C.
Return on Capital Employed (ROCE) and Net Profit Margin.
D.
Minimization of the Weighted Average Cost of Capital (WACC).
How to approach this question
Recall the primary financial objectives of Not-For-Profit (NFP) organizations. Since they lack shareholders, wealth maximization is replaced by the Value for Money (VFM) concept.
Full Answer
B.Value for Money (VFM) framework focusing on Economy, Efficiency, and Effectiveness.✓ Correct
Not-for-profit organizations like NGOs do not have equity shareholders and do not distribute profits. Therefore, traditional financial objectives like maximizing shareholder wealth or EPS are irrelevant. Instead, they focus on achieving their objectives using the Value for Money (VFM) framework, which assesses Economy (spending less), Efficiency (spending well), and Effectiveness (spending wisely).
Common mistakes
Students often select ROCE assuming all entities must measure return on investment, forgetting the specific nature of NGOs.
Practice the full ACCA FM — Financial Management Practice Exam 2
32 questions · hints · full answers · grading
More questions from this exam
Q02Section A
Quantum AI is a highly geared technology startup. The central bank of the country wher...MediumQ03Section A
AgriGrow Co is an agricultural supplier facing seasonal cash flow shortages. The finan...MediumQ04Section A
TerraFirma Mining needs to replace its heavy excavation machinery. The machinery can b...MediumQ05Section A
Crescent Holdings is looking to raise funds in compliance with Islamic finance princip...MediumQ06Section A
ServicePro Co has a market value of equity of $60 million and a market value of debt o...Easy