1

1 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
table below. 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 table above.

Change in current ratio: ...........................................................................................................................

..................................................................................................................................................................

Explanation of effect on CPK: ................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Change in profit margin: .........................................................................................................................

..................................................................................................................................................................

Explanation of effect on CPK: ................................................................................................................

..................................................................................................................................................................

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[Total: 6]
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2 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 in the table 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.

Reason 1: .................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Reason 2: .................................................................................................................................................

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.................................................................................................................................................................. [4]

[Total: 4]
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3 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 table below.
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: ...........................................................................................................................................

..................................................................................................................................................................

Explanation: ............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Suppliers: .................................................................................................................................................

..................................................................................................................................................................

Explanation: ............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]
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4 Calculate D2G’s gross profit margin. Show your working.

Extract from D2G’s income statement for the year ending 31 December 2021 ($)

Revenue 20 000

Gross profit 12 000

Profit for the year 2000

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]

5 State four financial ratios a business can use.

Financial ratio 1:.......................................................................................................................................

..................................................................................................................................................................

Financial ratio 2:.......................................................................................................................................

..................................................................................................................................................................

Financial ratio 3:.......................................................................................................................................

..................................................................................................................................................................

Financial ratio 4:.......................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]

6 Define ‘Return on Capital Employed’.

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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7 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 table below.

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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.................................................................................................................................................................. [6]

[Total: 6]

8 Define ‘margin of safety’.

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.................................................................................................................................................................. [2]
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[Total: 2]

9 LXA is a private limited company based in country Z. It makes children’s clothing. LXA sells its products
in competitive markets in several countries. LXA’s directors are considering different ways for the business
to grow. The Finance Director has prepared some financial information before meeting with some of LXA’s
stakeholders. An extract is shown in the Table. The Marketing Director wants LXA to start producing clothing
for adults.

Table:

Explain one way each of the following stakeholder groups might use LXA’s financial information.

Suppliers:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Shareholders:............................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]
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10 Define ‘Return on Capital Employed’.

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]

11 NBV is a multinational company. It makes building products such as bricks. Last year NBV’s financial
accounts showed capital employed as $144 billion. NBV has operations in 18 countries and a total 4 workforce
of 400000. NBV experiences some diseconomies of scale. All raw materials are purchased from the countries
it operates in to avoid problems with exchange rates. NBV plans to open a factory in Country B for the first
time.

Identify and explain two ways NBV’s managers could use its financial accounts to help make decisions.

Way 1:.......................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

Way 2:.......................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]
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12 MF is a public limited company. It was set up 30 years ago in country X and produces a large variety of food
products. The objectives of MF are to increase profits and increase market share. Most of MF’s competitors
are small partnership businesses. MF is the largest food producer in country X.

The Operations Director is planning to produce a new ice cream that does not contain sugar. Production of
the new product will require a new automated production line. It will require new equipment to be purchased.
Additional skilled workers will need to be recruited by the Human Resources department and existing workers
will need to be retrained. To manufacture ice cream that does not contain sugar, MF will have to use ingredients
that are extracted from plants in the rainforests in country X. This will cause environmental damage when
the plants are cut down.

MF’s Operations Director is worried about the high cost of this raw material and the cost of removing all the
waste from the production of this new ice cream. The cheapest way to get rid of the waste is to take it to local
landfill sites, which are nearly full. The Government is responsible for the costs of managing landfill sites.
Farmers lose their land when new landfill sites are created.

The new ice cream will be targeted at people who want to lose weight or who, for medical reasons, are not
allowed to eat products that contain a lot of sugar. Statistics show that 10% of the adult population should
not be eating sugary foods and a further 40% are thought to be overweight.

Country X has several new TV programmes aimed at people who are health conscious and new gyms are
being set up. Several other food businesses in country X are planning the introduction of new food products
that are low in sugar but they are not yet ready to launch them. MF and its competitors sell food products
through wholesalers and to large supermarkets.

Appendix 1

Consider how each of the following might use MF’s financial statements as shown in Appendix 1. Which
user would find the information most helpful? Justify your answer

Government:.............................................................................................................................................

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Bank:........................................................................................................................................................

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Shareholders:............................................................................................................................................

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Conclusion: ..............................................................................................................................................

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.................................................................................................................................................................. [12]

[Total: 12]
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13 What is meant by ‘return on capital employed’?

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.................................................................................................................................................................. [2]

[Total: 2]
 11

14 IBH is a family-owned private limited company. It makes a range of shoes for children, using batch production.
It is a competitive market. Like many businesses, IBH needs finance for a number of reasons. The Finance
Director has been looking at some financial data. An extract is shown in the Table. Some of the directors
would like to expand into the women’s shoe market and want to know whether IBH’s performance is
improving.

Table: Extract from financial data for IBH ($000)

Do you think IBH’s performance has improved in 2017? Justify your answer using profit margins.

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.................................................................................................................................................................. [6]

[Total: 6]
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15 Table: Summary of financial statements

Calculate the current ratio in 2017.

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
 13

16 Paul is the Managing Director of a private limited company called PShirts. It manufactures and sells men’s
and women’s shirts in country Y. Its products are priced lower than most of its competitors. Sales have fallen
recently even though there has been an economic boom. Paul is thinking about starting to sell shirts in other
countries. One of the directors is worried about legal controls in other countries. A summary of the accounts
is shown in the Table below.

Table: Summary of financial statements

Do you think Paul should be worried about the change in the profit margins between 2016 and 2017? Justify
your answer.

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.................................................................................................................................................................. [6]

[Total: 6]