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IGCSEBusinessCambridge (CIE)Exam Questions5. Financial Management5.5 Analysing the Accounts

Analysing the Accounts (Cambridge (CIE) IGCSE Business)

Exam Questions

1 hour15 questions
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Medium
Hard
14 marks

Case Study

AHG is an established business as it has been operating for a long time. It sells garden products including plants and flowers. AHG uses competitive pricing. The business has 4 managers and 30 other employees. All AHG’s managers use delegation. The Finance Manager is analysing AHG’s statement of financial position as she is interested in its liquidity. An extract is shown below

Extract from AHG’s statement of financial position at 30 March 2022 ($000)

Non-current assets

800

Current assets

660

Current liabilities

600

Outline two possible reasons why liquidity is important to AHG.

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22 marks

Identify two financial statements a public limited company is legally required to publish each year.

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32 marks

Identify two external users of accounts.

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42 marks

Define ‘Return on Capital Employed’.

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52 marks

Identify two profitability ratios.

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6
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Case Study

Kemala makes high-quality beauty products. Demand for her best-selling hand cream is price inelastic. She advertises her products in specialist beauty magazines. Kemala is analysing her income statement. An extract is shown in the below table. She said: ‘When I started my business, I did not understand why cash is important’.

Extract from Kemala’s income statement 2021 ($000)

Revenue

480

Gross profit

192

Profit for the year

72

Calculate Kemala's gross profit margin in 2021.

Show your workings.

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72 marks

Define 'profitability'.

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16 marks

Case Study

Elton is a sole trader. He sells specialist clothing and equipment for sports, including baseball and hockey. It is a niche market. Elton started his business 5 years ago and it has remained small. A wide range of inventory is important. Elton has been looking at the financial performance of his business. The profit margin for 2018 was 35%. An extract of the accounts is shown in the below table.

Revenue and cost information for Elton’s business for 2018 and 2019 ($)

2018

2019

Revenue ($)

24 000

25 000

Cost of sales ($)

7 200

Y

Gross profit ($)

16 800

18 000

Expenses ($)

8 400

10 000

Profit ($)

X

8 000

Do you think Elton should be pleased with the financial performance of his business? Justify your answer using appropriate ratios.

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26 marks

Case Study

PJA make fashion clothing for 16-25 year olds. Many of its competitors are multinational companies. PJA produce new products every 3 weeks. All PJA’s products are made in a local factory because 2 of import quotas. The Managing Director is reviewing PJA’s financial statements using ratio analysis. An extract is shown in Table 2.1.

Table 2.1 Extract from PJA’s financial statements for 2020

Revenue ($m)

7,400

Gross profit ($m)

3,330

Profit ($m)

1, 100

Current ratio

1.5

Return on Capital Employed (ROCE)

8%

Explain two ways PJA’s managers can use ratio analysis.

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36 marks

Case Study

VCG manufactures high-quality briefcases and travel bags. VCG has 50 skilled production workers in its factory. VCG is planning to expand by building a second factory. Different locations are being considered. The Managing Director is reviewing VCG’s financial statements. An extract is shown in the below table. Both internal and external stakeholder groups of VCG are interested in this information.

Extract from VCG’s 2021 financial statements ($)

Revenue

2 000 000

Current assets

300 000

Current liabilities

250 000

Shareholders’ equity (funds)

800 000

Explain one way each of the following stakeholder groups might use VCG’s accounts:

  • Shareholders

  • Suppliers

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46 marks

Case Study

CPK operates 5 sports clubs. Each club offers a range of activities including gym and yoga classes. CPK uses job enrichment to keep its 60 employees well-motivated. Having the right marketing mix is important to CPK’s success. The Finance Director is analysing CPK’s financial statements. An extract is shown in the below table. He wants to know how an increase in taxation might affect CPK’s business.

Extract from CPK’s financial statements

2020

2021

Current ratio

1.6

1.3

Profit margin

12%

10%

Non-current assets

$2m

$2m

Explain one possible effect on CPK of the change in each of the following ratios as shown in the above table.

  • Current ratio

  • Profit margin

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56 marks

Using the data in Appendix 3, calculate the following ratios for CC:

  • Gross profit margin

  • Profit margin

  • Current ratio

  • Acid test ratio

Show your workings.

Refer to the following insert when answering the question

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6
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Case Study

Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in the restaurant.

Izaak has been trying to increase added value to improve profits. Izaak has been looking at the financial performance of his business. An extract is shown in the table below. Izaak has received a number of complaints about food and service. He knows he must improve quality but cannot decide on the best way to do this.

Last year

Current year

Revenue

X

300

Cost of sales

180

150

Gross profit

120

150

Expenses

90

Y

Profit

30

15

Do you think the profitability of Izaak’s fish restaurant has improved since last year? Justify your answer using appropriate ratios.

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112 marks

Using Appendix 3 and other information, consider how the financial statements might be useful to the following three stakeholder groups.

  • NM’s shareholders

  • CC’s managers

  • CC’s bank manager

Which stakeholder group will find the financial information most useful? Justify your answer.

Refer to the following insert when answering the question

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212 marks

Consider the weekly forecasts in Appendix 2 for the two additional services Bethany could choose:

  • hair cuts

  • steam room.

Which additional service should Bethany choose to offer? Include a calculation of profit for the two services to justify your answer.

Refer to the following insert when answering the question

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