Topic 5 of 6 · Form 4
Financial information and decisions
Needs (start-up capital, working capital, capital expenditure and revenue expenditure); internal sources (retained profit, sale of assets, owner's savings) and external sources (loans, overdrafts, share issues, trade credit, leasing, hire purchase, microfinance, crowdfunding); choosing finance.
Notes for this topic 1 file, in order
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Business finance
Needs (start-up capital, working capital, capital expenditure and revenue expenditure); internal sources (retained profit, sale of assets, owner's savings) and external sources (loans, overdrafts, share issues, trade credit, leasing, hire purchase, microfinance, crowdfunding); choosing finance.
Cash flow forecasting
Inflows and outflows, net cash flow, opening and closing balances; uses and ways of improving cash flow.
Worked example: Opening balance US$2 000; inflows US$9 000; outflows US$10 500. Find the closing balance.
2 000 + 9 000 − 10 500 = US$500
Income statements
Revenue, cost of sales, gross profit, expenses and profit; retained profit.
Statements of financial position
Assets (non-current and current) and liabilities (current and non-current); equity.
Analysis of accounts
Profitability ratios (gross profit margin, profit margin, return on capital employed) and liquidity ratios (current ratio, acid test ratio); interpretation and users of accounts.
Worked example: Revenue US$50 000; gross profit US$20 000. Find the gross profit margin.
20 000 ÷ 50 000 × 100 = 40%
Check yourself
- Give two ways a business could improve its cash flow.
- What is working capital?
- Current assets US$30 000; current liabilities US$20 000. Find the current ratio.
Show answers
- Any two: chase debtors, delay payments to suppliers, reduce inventory, overdraft, sell unused assets.
- Current assets minus current liabilities – money available for day-to-day spending.
- 1.5 : 1
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