QuestionQuestionConceptConceptDocumentDocument

5. Financial information and decisions

Start with Concept to understand a topic, then use Question Bank to check what you know.

5 topics · 9 learning objectives

Your progress

Sign in to see your mastery and mistakes.

  1. 5.1. Business finance

    1. 5.1.1The need for business finance

      • the main reasons why businesses need finance: start-up capital, capital for expansion/growth, replacing existing non-current assets, investing in new technology, working capital • short-term and long-term finance needs of a business • concept and importance of working capital

    2. 5.1.2The main sources of finance

      • internal sources of finance: owners’ investment, retained profit, sale of unwanted assets, working capital • external sources of finance: share capital or issuing shares, venture capital, bank overdrafts, leasing, hire purchase, bank loans, trade credit, government grants, crowdfunding • advantages and disadvantages of internal and external sources of finance • the main factors to consider when selecting a source of finance: size of business, legal form of business, amount required, length of time, existing loans, cost, purpose • recommend and justify an appropriate source of finance for a given situation

  2. 5.2. Cash flow forecast

    1. 5.2.1

      • why cash is important to a business • what a cash flow forecast is and why it is important • main features of a cash flow forecast: cash inflow, cash outflow, net cash flow, opening balance, closing balance • amend or complete a simple cash flow forecast • interpret a simple cash flow forecast • how a short-term cash flow problem may be overcome: overdraft, delaying supplier payments, asking customers to pay more quickly, delay purchase of non-current assets Note: candidates will not be assessed on constructing a cash flow forecast.

  3. 5.3. Profit and loss

    1. 5.3.1What is profit and why it is important

      • what profit is • importance of profit to private sector businesses: reward for risk-taking, source of finance, measure of success, attract investors

    2. 5.3.2Statement of profit or loss

      • main features of a statement of profit or loss: revenue, cost of sales, gross profit, expenses, profit • make simple calculations based on a statement of profit or loss: revenue, cost of sales, gross profit, expenses, profit • make decisions based on simple statements of profit or loss Note: candidates will not be assessed on constructing statements of profit or loss.

  4. 5.4. Statement of financial position

    1. 5.4.1

      • non-current assets, e.g. property (land and buildings), machinery • current assets, e.g. inventory, trade receivables, cash • non-current liabilities, e.g. bank loans • current liabilities, e.g. trade payables, overdraft • concept of capital employed • make simple calculations based on statements of financial position: total assets, total liabilities, working capital • make decisions based on simple statements of financial position Note: candidates will not be assessed on constructing statements of financial position.

  5. 5.5. Analysis of accounts

    1. 5.5.1Profitability

      • concept of profitability • calculate and interpret the following profitability ratios: • gross profit margin • profit margin • return on capital employed (ROCE)

    2. 5.5.2Liquidity

      • concept of liquidity • calculate and interpret the following liquidity ratios: • current ratio • acid test ratio

    3. 5.5.3Users of accounts

      • users of accounts and ratio analysis: internal, e.g. owners (sole traders, partnerships, shareholders), managers, employees • users of accounts and ratio analysis: external, e.g. suppliers, government, lenders/banks • how users of accounts may use financial information to help make decisions, e.g. whether to lend to or invest in a business • limitations of using accounts and ratio analysis