Financial Information and Decision

Topics Covered in this Unit - Financial Information and Decisions

5.1 Business finance: needs and sources

5.1.1 The need for business finance:

  • The main reasons why businesses need finance, e.g. start-up capital, capital for expansion and additional working capital
  • Understand the difference between short-term and long-term finance needs

5.1.2 The main sources of capital:

  • Internal sources and external sources with examples
  • Short-term and long-term sources with examples, e.g. debt or equity for long-term finance
  • Importance of micro-finance in developing economies
  • The main factors considered in making the financial choice, e.g. size and legal form of business, amount required, length of time, existing loans
  • Recommend and justify appropriate source(s) of finance in given circumstances

5.2 Cash flow forecasting and working capital

5.2.1 The importance of cash and of cash-flow forecasting:

  • Why cash is important to a business
  • What a cash-flow forecast is, how a simple one is constructed and the importance of it
  • Amend or complete a simple cash-flow forecast
  • How to interpret a simple cash-flow forecast
  • How a short-term cash-flow problem might be overcome, e.g. increasing loans, delaying payments, asking debtors to pay more quickly

5.2.2 Working capital:

• The concept and importance of working capital

5.3 Income statements

5.3.1 What profit is and why it is important:

  • How a profit is made
  • Importance of profit to private sector businesses, e.g. reward for risk taking/enterprise, source of finance
  • Difference between profit and cash

5.3.2 Income statements:

  • Main features of an income statement, e.g. revenue, cost of sales, gross profit, profit (‘profit’ was known as ‘net profit’ in the 2014 and previous syllabuses) and retained profit
  • Use simple income statements in decision making based on profit calculations (constructing income statements will not be examined)

5.4 Balance sheets

5.4.1 The main elements of a balance sheet:

  • The main classifications of assets and liabilities
  • Examples to illustrate these classifications

5.4.2 Interpret a simple balance sheet and make deductions from it, e.g. how a business is financing its activities and what assets it owns, sale of inventories to raise finance (constructing balance sheets will not be examined)

5.5 Analysis of accounts

5.5.1 How to interpret financial statements by calculating and analysing accounting ratios:

  • Gross profit margin
  • Profit margin (‘profit margin’ was known as ‘net profit margin’ in the 2014 and previous syllabuses)
  • Return on Capital Employed
  • Current ratio
  • Acid test ratio

5.5.2 Liquidity:

  • The concept and importance of liquidity

5.5.3 Why and how accounts are used:

  • Needs of different users of accounts and ratio analysis
  • How users of accounts and ratio results might use information to help make decisions, e.g. whether to lend to or invest in the business

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

WHO'S ONLINE

We have 311 guests and no members online

MindMaps

PDF FILE

Download

Cheatsheets

PDF FILE

Download

Crosswords

PDF FILE

Download

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline