3.6 Finance
Students should understand the
interdependent nature of business operations, human
resources, marketing and finance. Students should be able to give examples of how
business objectives would be split into functional plans with clear links
throughout.
The purpose of the finance function, its role within business and how it influences
business activity.
Sources of finance
Content
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Additional information
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- Methods businesses use to raise finance
- Appropriateness of sources of finance
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Students should be able to:
- understand the main internal and external sources of finance
available (including family and friends, retained profit, a
new share issue, obtaining a loan or mortgage, selling
unwanted assets, overdrafts, trade credit, hire purchase and
government grants)
- analyse the advantages and disadvantages of each method for
a given situation
- evaluate the suitability of sources of finance for new and
established businesses.
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Cash flow
Content
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Additional information
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- Importance of cash to businesses
- Interpreting cash flow forecasts
- Difference between cash and profit
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Students should be able to:
- understand the consequences of cash flow problems and the
effect of positive cash flow
- understand how and why cash flow forecasts are
constructed
- complete and interpret sections of a cash flow forecast
(this includes an understanding of cash inflows and
outflows, net cash flow and the opening and closing balance.
Students are not expected to be able to construct an entire
cash flow forecast)
- evaluate possible solutions to cash flow problems, including
re-scheduling payments,
overdrafts, reducing
cash outflow, increasing cash inflow and
finding new sources of
finance.
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Financial terms and calculations
Content
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Additional information
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- Basic financial terms
- Basic financial calculations
- Average rate of return
- Break-even
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Students should be able to:
- understand the difference between variable costs, fixed
costs and total costs
- understand the concept of
revenue, costs, profit and loss
- understand the main investment projects that businesses
undertake, including investment in new machinery, buildings
and vehicles and be able to calculate the average rate of
return for these projects
- understand the meaning of the term break-even output and
interpret break-even charts
- identify the break-even level of output and margin of safety
from a break-even chart
- evaluate the value of using break-even analysis to a
business.
Students will not be expected to draw break-even charts or use the break-even
formula.
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Content
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Additional information
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- Purpose of financial statements
- Components of financial statements
- Interpretation of data given on financial statements
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Students should be able to:
- understand the importance of financial statements for assessing business
performance and helping make business decisions
- identify the main components of the income statement and the
statement of financial
position
- understand the difference between assets and liabilities and
that the
statement of financial
position is a snapshot in time
- make judgements on the performance of a business through the interpretation of the
information contained in income statements
- consider current performance, performance against previous years, performance
against competitors and performance from the perspective of a
range of stakeholders
- calculate gross profit margin and net profit margin to help assess financial
performance.
Students will not be given formulae in an exam.
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