Unit 3: Finance and Accounts
3.1 Sources of finance
Role of finance for businesses: capital expenditure, revenue expenditure
The following internal sources of finance: personal funds (for sole traders), retained profit, sale of assets
The following external sources of finance: share capital, loan capital, overdrafts, trade credit, grants, subsidies, debt factoring, leasing, venture capital, business angels
Short, medium and long-term finance
The appropriateness, advantages and disadvantages of sources of finance for a given situation
3.2 Costs and revenues
The following types of cost, using examples: fixed, variable, semi-variable, direct, indirect/overhead
Total revenue and revenue streams, using examples
3.3 Break-even analysis
Total contribution versus contribution per unit
A break-even chart and the following aspects of break-even analysis: break-even quantity/point, profit or loss, margin of safety, target profit output, target profit, target price
The effects of changes in price or cost on the break-even quantity, profit and margin of safety, using graphical and quantitative methods
The benefits and limitations of breakeven analysis
3.4 Final accounts (some HL only)
The purpose of accounts to different stakeholders
The principles and ethics of accounting practice
Final accounts: profit and loss account, balance sheet
Different types of intangible assets
Depreciation using the following methods: straight line method, reducing/declining balance method (HL)
The strengths and weaknesses of each method (HL)
3.5 Profitability and liquidity ratio analysis
The following profitability and efficiency ratios: gross profit margin, net profit margin, ROCE
The following liquidity ratios: current, acid-test/quick
Possible strategies to improve these ratios: gross profit margin, net profit margin, ROCE
Possible strategies to improve these ratios: current, acid-test/quick
3.6 Efficiency ratio analysis (HL only)
The following further efficiency ratios: inventory/stock turnover, debtor days, creditor days, gearing ratio
Possible strategies to improve these ratios
3.7 Cash flow
The difference between profit and cash flow
The working capital cycle
Cash flow forecasts
The relationship between investment, profit and cash flow
The following strategies for dealing with cash flow problems: reducing cash outflow, improving cash inflows, looking for additional finance
3.8 Investment appraisal (some HL only)
Investment opportunities using payback period and average rate of return (ARR)
Investment opportunities using net present value (NPV) (HL)
3.9 Budgets (HL only)
The importance of budgets for organizations
The difference between cost and profit centres
The roles of cost and profit centres
Variances
The role of budgets and variances in strategic planning
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