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GCE A/L Business Studies study materials
GCE A/L Business Studies study resources

GCE A/L Business Studies: Financial Management and Accounting

GCE A/L Business Studies · Work through your exam, one topic at a time.

All guide sections

Financial Management and Accounting

Financial management and accounting

This domain tests how firms raise, record, control and evaluate money. Expect cash-flow forecasting, cost classification, final accounts and ratio analysis, with interpretation carrying more marks than calculation.

Core rules and concepts

  • Internal finance includes retained profit and asset sales; external finance includes loans, overdrafts, share capital, debentures, leasing and trade credit. Match the source to the need: short-term working capital suits an overdraft; long-term assets suit a loan or equity.
  • A cash-flow forecast records expected inflows and outflows by period. Profit is not cash: a profitable sale on credit can leave a cash deficit.
  • Working capital = current assets − current liabilities. The current ratio = current assets ÷ current liabilities; the acid-test ratio excludes stock.
  • Gross profit margin = gross profit ÷ revenue × 100%. Net profit margin = net profit ÷ revenue × 100%. ROCE = operating profit ÷ capital employed × 100%. Gearing = long-term debt ÷ capital employed × 100%.
  • Investment appraisal includes payback, average rate of return and discounted cash flow (NPV), which recognises the time value of money.

Worked example

A retailer has current assets of $180,000 (including $90,000 stock) and current liabilities of $120,000. Current ratio = 1.5:1. Acid-test ratio = (180,000 − 90,000) ÷ 120,000 = 0.75:1. The firm looks liquid on the current ratio, but half its current assets are stock; if stock sells slowly, it may struggle to pay debts. A supplier demanding earlier payment would worsen the position. The reasoning: ratios are only useful compared with prior years, competitors or industry norms, and stock quality matters.

Traps that cost marks

Do not say a high current ratio is always good; excess stock or slow debtors can hide inefficiency. Do not treat profit as cash. Do not mix up gross and net profit margins. Do not ignore the balance sheet identity: assets = liabilities + equity. In NPV, do not add undiscounted cash flows.