Financial information and decisions IGCSE Business Studies

Financial information and decisions is an IGCSE Business topic; we have covered everything and made the lessons fun and put together online tests to help you get through this without any problems.

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 finance:

• Internal sources and external sources with examples
• Short-term and long-term sources with examples, e.g. overdraft for short-term finance and debt or equity for long-term finance
• Importance of alternative sources of capital, e.g. micro-finance, crowd-funding
• 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. overdraft, delaying supplier 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 and retained profit
• Use simple income statements in decisionmaking based on profit calculations (constructing income statements will not be assessed)

5.4 Statement of financial position

5.4.1 The main elements of a statement of financial position:

• The main classifications of assets and liabilities, using examples

5.4.2 Interpret a simple statement of financial position 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 statements of financial position will not be assessed)

5.5 Analysis of accounts

5.5.1 Profitability:

• The concept and importance of profitability

5.5.2 Liquidity:

• The concept and importance of liquidity

5.5.3 How to interpret the financial performance of a business by calculating and analysing profitability ratios and liquidity ratios:

• Gross profit margin
• Profit margin
• Return on Capital Employed
• Current ratio
• Acid test ratio

5.5.4 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