ACCA FM September 2026: Why Working Capital Wrecks Your NPV (MJ25 Examiner Report)

The one line that costs candidates a clean sweep of NPV marks

In the FM investment appraisal question, working capital is the most reliable mark-loser there is. Get it right and it's three or four easy marks. Get it wrong — by putting the full balance in every year instead of the change — and you throw them away while doing more arithmetic than you needed to.

What the examiner keeps seeing

The MJ25 FM examiner report is blunt about the NPV question: too many candidates treat working capital as a total each year rather than as the incremental movement. Working capital is not a cost — it's cash tied up in the business. Only the change in that balance is a cash flow, and the whole cumulative balance is recovered at the end of the project.

The same report flags the profit-to-cash-flow adjustment as a repeat offender. Candidates leave depreciation or amortisation in the cash flows, deduct items they should add back, or make only half the adjustment. Depreciation is not a cash flow — add it back to profit to get to cash before you discount anything.

Tax timing is the third quiet killer. On too many scripts the direction and year of the tax cash flow is wrong. If the question gives a one-year lag, the tax on Year 1 profit is a Year 2 cash flow — and tax-allowable depreciation (capital allowances) generates a tax saving, an inflow, not an outflow.

Worked example: the change, not the total

Say a project needs working capital equal to a rising figure each year: $10,000 at the start, $11,000 after Year 1, $12,000 after Year 2, with the project ending at the end of Year 2.

The wrong answer (scores almost nothing): outflows of $10,000, then $11,000, then $12,000 — treating the full balance as a fresh cost every year.

The correct answer: $10,000 outflow at T0, then only the increment of $1,000 at T1 and $1,000 at T2 — and a $12,000 inflow at the end when the balance is released. Same information, completely different cash flows. The marker is checking whether you understand what working capital is, not whether you can copy a number.

What to do in the exam

1. Build a working capital line, not working capital cells. Write the required balance for each year across the top, then take the difference row underneath. Those differences — plus the final recovery — are what go into your NPV.

2. Do the profit-to-cash bridge before you discount. Start from operating profit, add back depreciation and amortisation, then bring in tax and capital allowances. Never discount a profit figure.

3. Fix the tax timing first, then the sign. Note the lag the question gives you, put tax in the right year, and make capital-allowance tax relief an inflow. A quick working saves you from guessing later.

Bottom line

FM's global pass rate sits around the low-to-mid 50s, and investment appraisal is where the applied marks live. Working capital, the depreciation add-back and tax timing are not hard — they're just where technique quietly leaks. Treat working capital as a movement, and you've banked marks most candidates hand back.