CAIE IGCSE Business Studies 5.1.1 The Need for Business Finance Questions
Practise finance-need questions by explaining why money is required and linking working capital to daily operations and survival.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Explain finance needs such as start-up capital, expansion or replacing non-current assets.
- Apply working capital to paying wages, suppliers, inventory or day-to-day expenses.
- Distinguish short-term finance needs from longer-term investment in assets or technology.
CAIE IGCSE Business Studies 5.1.1 The Need for Business Finance Questions question 1
[Maximum number: 8]
Explain two reasons why working capital is important to LB.
Reason 1:
Explanation:
Reason 2:
Explanation:
Explain two reasons why working capital is important to LB.
Award 1 mark for each reason why working capital is important (max 2).
Award a maximum of 3 additional marks for each explanation of why working
capital is important - one of which must be applied to this context.
Relevant reasons might include:
- To be able to pay for day-to-day expenses / fixed costs / variable costs /
overheads - if not able to pay for these costs then output cannot be
produced - and no products could be produced
- To prevent cash flow problems - so the business does not lack liquidity -and does not become insolvent / cease trading / not survive
- To support a bank loan application - as having enough working capital will
help to show an ability to repay the loan
- To be able to offer customers credit terms to encourage sales (1)
- To pay for unexpected expenses (1)
For example: Needed to pay day-to day expenses (1) as LB will need to buy
components to manufacture the bathroom equipment (app). If there is
insufficient working capital, the business may not have the cash to pay wages and other expenses (1) it will be difficult for LB to continue trading (1).
Application might include: luxury bathroom products;
baths/basins/showers;
started 20 years ago;
plan to produce a new range of bathroom products;
sells in specialist retail shops;
website contains information on product range;
operates in a very competitive market.
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