BKH is a large public limited company. It has 2000 employees across 18 locations. BKH sells a range of insurance products including house and car insurance. BKH’s shareholders want the 1 business to increase profit. The Managing Director knows increasing profit can conflict with the objectives of other stakeholder groups. She said: ‘Private sector businesses have different objectives to public sector organisations.’ BKH is also planning to expand by taking over another insurance company. Define ‘public sector’. (a) … … … … [2] Define ‘profit’. (b) … … … … [2] Identify four ways to measure the size of a business. (c) Way 1: … … Way 2: … … Way 3: … … Way 4: … … [4] Explain one way each stakeholder’s objectives might conflict with BKH’s objective to increase profit. (d) Customers objective: … … How this objective might conflict: … … … … Employees objective: … … How this objective might conflict: … … … … [6] Do you think economies of scale are the most important reason for taking over another business? Justify your answer. (e) … … … … … … … … … … … … [6]

1(a) Define ‘public sector’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Government or state-owned businesses/organisations [2] OR Part of the economy controlled by state/government [2] Partial definition e.g. not owned by individuals [1] OR Provided/run by government [1] 2 1(b) Define ‘profit’ Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of money left after all costs have been subtracted from revenue. [2] OR Surplus after total costs deducted from sales revenue [2] OR (Total) revenue – total cost [2] OR Gross profit minus expenses [2] Partial definition e.g. revenue minus costs [1] 2 Do not credit answers such as money made by business. [TV] 1(c) Identify four ways to measure the size of a business Award 1 mark per way. Points could include: • Sales value / value of output / revenue • Volume of output / amount of services / amount of sales / number of customers • (Value of) capital employed / value of statement of financial position / market capitalisation • Market share • Number of employees • Number of outlets Other appropriate responses should also be credited. 4 Only award the first four responses given. Do not credit measures of success such as profit. 1(d) Explain one way each stakeholder’s objectives might conflict with BKH’s objective to increase profit. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Customers • May want low prices / value for money [k] when buying insurance [app] which could reduce revenue [an] • Desire high-quality customer service [k] which requires more than 2000 staff [app] increasing costs/expenses [an] • May want offices in more locations [k] than 18 [app] which could increase costs [an] Employees • May want high/regular pay [k] for its 2000 employees [app] which could lead to higher costs [an] • May require job security / contract [k] after the takeover [app] • Job satisfaction / motivation / training / promotion [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Insurance (of house or car) • 18 (locations) • 2000 (employees) • Public limited company • Shareholders • Takeover or expand. Other appropriate examples in context can be credited. 1(e) Do you think economies of scale are the most important reason for taking over another business? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether economies of scale are the most important reason for taking over another business. Points might include: • Possible purchasing economies of scale / bulk buying [k] leading to lower average costs [an] which could allow for lower prices [an] • Reduces competition [k] which could increase market share / sales [an] and therefore increase revenue [an] • Economies of scale may not be possible to achieve [k] • A business can become too large and may experience diseconomies of scale [k] Other appropriate responses should also be credited. Justification might include: Possible purchasing economies of scale / bulk buying [k] leading to lower costs [an] which could allow for lower prices [an]. Removing a competitor maybe an alternative reason for the takeover [k]. It depends on the business’ objectives [eval] if it is a direct competitor increased market share maybe more important than possible economies of scale. [eval] 6 This is a general question so there are no marks for application. Two knowledge marks are available for examples of economies of scale. Lower average unit costs may be [k] or [an] but do not credit the same point twice.

WYP is a business partnership. Greg and his 3 friends started the business 7 years ago. WYP make eyeglasses (spectacles) which are only sold through its website. The price of each pair of 1 glasses is $95. This is $200 cheaper than its main competitor. Greg said: ‘It was difficult at the start as we could not get trade credit. We also knew it would take time to develop customer loyalty.’ Greg thinks choosing the right method of promotion is important to the success of any new product. Define ‘partnership’. (a) … … … … [2] Define ‘customer loyalty’. (b) … … … … [2] Outline two possible reasons why WYP could not get trade credit. (c) Reason 1: … … … … Reason 2: … … … … [4] Explain two possible problems for WYP of selling products at low prices. (d) Problem 1: … … Explanation: … … … … Problem 2: … … Explanation: … … … … [6] Do you think promotion is more important than product for a new business? Justify your answer. (e) … … … … … … … … … … … … [6]

1(a) Define ‘partnership’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Two [or more] people who agree to jointly own a business together [2] OR An unincorporated business that has more than one owner [2] Partial definition e.g. 2 or more people create / start a business [1] 2 For 2 marks need idea of two or more people and ownership. Do not accept features e.g. unlimited liability. 1(b) Define ‘customer loyalty’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Likelihood of previous customers returning to buy goods or services from a business. [2] OR Customers keep buying from a particular shop, business or buy one particular product, rather than use other shops or buy products made by other businesses [2] Partial definition e.g. keeps customers [1] OR Choose your business rather than competitors (even if cheaper) [1] 2 Do not credit answers such as ‘brand loyal’ on its own as it does not explain the term. Do not award answers which simply reorder the term e.g. having lots of customers who are loyal. 1(c) Outline two possible reasons why WYP could not get trade credit. Award 1 mark for each relevant reason. Award 1 mark for each relevant reference to this business. Points might include: • No previous experience [k] of selling eye glasses [app] • Seen as higher risk / lenders don’t trust them / lender unsure whether able to repay [k] especially as product is $200 cheaper (than main competitor) [app] • Could offer no security [k] when started 7 years ago [app] • Unproven product/idea [k] of selling only through a website [app] • No business plan [k] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • (Eye) glasses/spectacles • $95 or $200 • Started 7 years ago • Website • 3 friends • Customer loyalty • Partnership Other appropriate examples in context can still be credited. 1(d) Explain two possible problems for WYP of selling products at low prices. Award 1 mark for identification of each relevant problem (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Seen as cheap / seen as low quality [k] as $200 less [app] could lead to fewer sales [an] • Cash flow problems [k] as does not generate as much revenue per unit [an] when selling eye glasses [app] • Low profit margin [k] so harder / need to sell more to break even [an] • Can be difficult / less scope to use promotional pricing to encourage sales [k] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • (Eye) glasses/spectacles • $95 or $200 • Started 7 years ago • Website • 3 friends • Customer loyalty • Trade credit • Partnership Other appropriate examples in context can still be credited. Do not award $295 as analysis as this does not show any explanation. 1(e) Do you think promotion is more important than product for a new business? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether promotion is more important than product for a new business. Points might include: Promotion • Helps raise awareness / inform people [k] leading to more sales [an] therefore increase revenue [an] • Can help attract/persuade potential customers [k] • Can help create/build brand image [k] increasing customer loyalty [an] • Way to communicate with customers [k] • Help compete with competitor’s products [k] Product • This is what people buy / without a product there is nothing to promote / if dislike the product customers will not buy it [k] • A poor/bad quality product will not last long in the market [k] so time/money spent developing it would be wasted [an] • A good product will not necessarily sell itself [k] Other appropriate responses should also be credited. Justification might include: Promotion is important as it means that the more people are aware of your product, the more likely they are to buy, [k] leading to additional revenue [an]. It can also help build brand image [k] increasing customer loyalty [an]. However, the product is what people are buying so without a product there is nothing to promote. Overall, I think it does depend on the product – if product is unique, this is probably more important especially for a new business as there are no alternatives, so the business has a better chance of establishing itself in the market. [eval] [eval] 6 This is a general question so there are no marks for application. Some points could apply to either option or be awarded as [k] or [an] but do not award the same point twice e.g. increase sales can be [k] or [an]. To access evaluation marks, candidates must discuss both elements of the marketing mix. For both evaluation marks response must be linked to a new business. Do not award vague statements such as both are important, or that higher sales lead to higher profits.

After identifying a gap in the soft drinks market, Jerome developed a low sugar drink. He borrowed $5000 from family and friends to start-up a business and to provide working capital. Jerome operates 1 as a sole trader. To promote his product, Jerome handed out free samples in the town centre. In the first year, Jerome’s business sold 10000 units. This is 200 units more than his break-even output. Jerome is considering ways to increase added value. Identify two features of a sole trader. (a) Feature 1: … … Feature 2: … … [2] Define ‘working capital’. (b) … … … … [2] Outline two ways that break-even information can help Jerome’s business. (c) Way 1: … … … … Way 2: … … … … [4] Explain how each of the following can help Jerome increase added value: (d) Change the packaging: … … … … … … Use cheaper materials: … … … … … … [6] Do you think giving out free samples is the best method of sales promotion for a business to use when promoting a new food product? Justify your answer. (e) … … … … … … … … … … … … [6]

1(a) Identify two features of a sole trader. Award 1 mark per feature. Points might include: • Keeps all the profit • Unlimited liability • Unincorporated / no separate legal identity • Takes all decisions / own boss • Has total ownership of business / owned by one person • Few legal requirements Other appropriate responses should also be credited. 2 Do not credit in private sector as this applies to many forms of business organisation. 1(b) Define ‘working capital’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of capital available to a business to pay its day-to-day expenses/costs [2] OR The capital needed to finance the day to day running expenses (and pay the short-term debts of the business) [2] OR Current assets – current liabilities [2] Partial definition e.g. funds used to buy inventory [1] 2 Do not credit examples. 1(c) Outline two ways that break-even information can help Jerome’s business. Award 1 mark for each relevant way. Award 1 mark for each relevant reference to this business. Points might include: • He knows the level of output needed to make a profit / cover costs [k] for his (low sugar) drink [app] • Helps planning/forecasting/decision-making [k] such as how best to increase added value [app] • Help apply for finance [k] as so far only borrowed from friends and family [app] • Can see what will happen if costs/prices change [k] • Helps identify the expected level of profit/loss at different levels of output [k] • Help identify the margin of safety [k] based on the 10 000 units sold [app] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • (low sugar) drinks • 200 units above break-even • 10 000 / 9800 units sold • Added value • Family and friends Other appropriate examples in context can still be credited. Do not award points such as shows costs/sales/revenue/profit on own as this is too vague. 1(d) Explain how each of the following can help Jerome increase added value: • Change the packaging • Use cheaper materials Award 1 mark for identification of each relevant point (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Change the packaging: • This will allow Jerome to be able to increase the price [k] of his drink [app] increasing the gap between price and costs [an] • Customers can perceive the product to be worth more [k] so may be prepared to pay more for the same product [an] Use cheaper materials: • This will help lower input costs [k] when making 10 000 units [app] increasing the gap between cost and price [an] • Lower costs [k] can lead to higher profit per unit sold [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • (low sugar) drinks • 200 units above break-even • 10 000 units sold • 9800 (break-even) Other appropriate examples in context can still be credited. 1(e) Do you think giving out free samples is the best method of sales promotion for a business to use when promoting a new food product? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for a justified decision as to whether free samples are the best method of sales promotion for a business to use when promoting a new (food) product. Points might include: Free samples: • Encourages potential customers to try something [k] which can persuade them to buy [an] • Trying is likely to be more effective than just telling someone about it [k] as the taste is an important part of the buying process [an] • Tempts existing customers to buy more [k] which can increase revenue [an] • Cost of providing samples [k] can decrease profit margin [an] • Way to use up inventory [k] • No guarantee people will buy [k] Other options could include: • Buy one get one free [k] would generate some income [an] • Point of sale displays [k] raise awareness of the product [an] Other appropriate responses should also be credited. Justification might include: • Encourages potential customers to try something new [k] which can persuade them to buy [an]. However, the cost of providing samples [k] can decrease the profit margin. [an] Free samples are the best method despite the cost [eval] as taste is important when buying food [eval]. 6 This is a general question so there are no marks for application. Candidates can discuss other options, but evaluation must focus on whether free samples is the best method of sales promotion to use.

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 7400 Revenue ($m) 3330 Gross profit ($m) 1100 Profit ($m) 1.5 Current ratio 8% Return on Capital Employed (ROCE) Define ‘import quota’. (a) … … … [2] Calculate PJA’s gross profit margin. Show your working. (b) … … … [2] Outline one benefit and one limitation to PJA of developing new products. (c) Benefit: … … … … Limitation: … … … … [4] Explain two ways PJA’s managers can use ratio analysis. (d) Way 1: … … Explanation: … … … … Way 2: … … Explanation: … … … … [6] Do you think multinational companies always benefit the countries they operate in? Justify your answer. (e) … … … … … … … … … … … … [6]

2(a) Define ‘import quota’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Limit on the number of goods into a country [2] Partial definition e.g. limit on number of imports [1] 2 2(b) Calculate PJA’s gross profit margin. Show your working. Correct answer 45(%) [2] Correct method but incorrect answer [1] e.g. gross profit / revenue ×100 OR 3330 / 7400 *100 2 0.45 alone = 0 2(c) Outline one benefit and one limitation to PJA of developing new products. Award 1 mark for each relevant benefit/limitation. Award 1 mark for each relevant reference to this business. Points might include: Benefit: • Attract new customers / sales / growth [k] for its clothes [app] • Need to replace products in decline / keep up with changing customer tastes [k] of 16–25-year-olds [app] • Retain customers / to maintain market share [k] • Spread risk / attract new markets / have other products to rely on for sales [k] • Charge a higher price [k] • Improve reputation [k] • Can create a unique selling point [k] Limitations: • No guarantee customers will like the new product [k] as fashion changes [app] • Competitors might introduce rival products / reduce prices [k] as most of competitors are multinational companies [app] • High cost [k] • Production issues, e.g. is there sufficient capacity [k] within factory [app] • Having access to suitable materials [k] as trying to avoid import quotas [app] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Correct use of data from table 2.1 • Clothes • Fashion • 16–25-year-olds / young customers • Local • Factory • Multinational companies • 3 weeks / 21 days. Other appropriate examples in context can still be credited. 2(d) Explain two ways PJA’s managers can use ratio analysis. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: • Able to see trends over time [k] for its clothing [app] to see where / whether performance has improved or not [an] • See trends between competitors [k] such as whether revenue is higher than $7400m [app] to assess how / whether they are as competitive as they think [an] • Able to measure financial performance / profitability / success [k] as if last year ROCE was lower than 8% [app] profitability has improved [an] • Help make investment/expansion decisions [k] such as developing new products [app] • Check / manage liquidity OR working capital [k] as if last year the current ratio was higher than 1.5 [app] then they know liquidity has got worse [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • Correct use of data from table 2.1 • Clothes • Fashion • 16-25-year-olds / young customers • Local or factory • Multinational companies • Develop new products. Other appropriate examples in context can be credited. 2(e) Do you think multinational companies always benefit the countries they operate in? Justify your answer. Award up to 2 marks for identification of relevant issues. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to whether multinational companies always benefit the countries, they operate in. Points might include: • Creates jobs / provides income [k] so improving living standards [an] • Technical knowhow increased [k] which could help improve production methods / efficiency / output [an] • Orders for local suppliers [k] increasing local incomes / GDP [an] • Improve international reputation of country [k] • Increased investment / infrastructure development in country [k] • Companies pay taxes [k] which increases government income [an] • Competition for local businesses [k] leading to lower demand / lower prices [an] which could lead to the closure of local businesses [an] • Profits are often repatriated [k] limiting the countries growth [an] • Offer higher wages [k] reducing supply of workers for local business [an] • Use up limited resources [k] so there is less available for other local businesses [an] • Jobs created may be unskilled [k] Other appropriate responses should also be credited. Justification might include: Companies pay taxes [k] which increases government income [an]. However, reduced sales for local businesses [k] may lead to lower revenue [an]. A multinational always benefits a country to some extent, because of the money invested. [eval] The overall impact depends upon the effect on local businesses. [eval] 6 This is a general question so there are no marks for application. Analysis should focus on the impact on the country.

NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX’s cash-flow forecast. An 2 extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40000. The manager is considering using either internal sources or external sources to finance this technology. Table 2.1 NPX’s cash-flow forecast for the period July – September 2021 ($000) September August July 140 120 100 Cash inflows 110 90 90 Cash outflows 30 30 10 Net cash flow 45 15 5 Opening balance 75 45 15 Closing balance Define ‘opening balance’. (a) … … … [2] State two ways a business can increase productivity. (b) Way 1: … Way 2: … [2] Identify four sources of internal finance a business might use. (c) Source 1: … … Source 2: … … Source 3: … … Source 4: … … [4] Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology. (d) Effect 1: … … Explanation: … … … … Effect 2: … … Explanation: … … … … [6] Do you think it is better for a tertiary sector business to use full-time employees rather than part-time employees? Justify your answer. (e) … … … … … … … … … … … … [6]

2(a) Define ‘opening balance’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of cash held by a business at the start of the month / trading period [2] Partial definition e.g. cash that a business has [1] 2 2(b) State two ways a business can increase productivity. Award 1 mark per way. Points might include: • Improve labour skills / (improve) training • (Increase) motivation (or examples – max 1) • Automation / replace workers with machines • Use more automation • (Introduce) new technology / (use) better machinery • Improve quality of materials / improve quality control / introduce quality assurance • Improve/introduce inventory control / kaizen / JIT / lean production • Reorganise layout of factory / eliminate bottleneck. Other appropriate responses should also be credited. 2 Only award the first two responses given. 2(c) Identify four sources of internal finance a business might use. Award 1 mark per source. Four from: • (Retained) profit • Sale of (existing) non-current assets • Sale of inventories / reduce inventory levels / sell current assets • Owner’s savings • Reduce trade receivables / ask customers to pay more quickly / reduce time given for customers to pay Other appropriate responses should also be credited. 4 Only award the first four responses given. 2(d) Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology. Award 1 mark for identification of each relevant effect (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2.) Points might include: • Higher repayment costs / initial cost to buy machinery [k] which increases cash outflow [an] as need to pay $40 000 [app] • Reduce wage costs [k] as need 35 fewer employees [app] lowering cash outflow [an] • Increased training costs [k] increasing cash outflows [an] • Possible redundancy payments [k] increasing cash- outflow [an] • Sell old machinery / use an external source of finance [k] which would generate a cash inflow [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question: • $40 000 • 35 / 60 full-time (employees) / redundant • Correct use of data e.g. $110 000 cash outflow in September • Online retailer • Warehouse • Selecting and packing items • To improve productivity • Internal/external source of finance Other appropriate examples in context can still be credited. For analysis answers must focus on the impact on cash outflow or cash inflow. 2(e) Do you think it is better for a tertiary sector business to use full-time employees rather than part-time employees? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether it is better for a tertiary sector business to employ full-time workers rather than part-time employees. Points might include: Full-time: • Consistent service / more familiar with business [k] which helps build / maintain customer relationships / better reputation [an] • Workers likely to be loyal / more committed / less likely to leave business [k] reducing recruitment costs [an] • Easy to communicate / update (compared to part-time employees) [k] leading to fewer errors / misunderstandings [an] • Need to recruit / train fewer employees [k] saving time or cost of recruitment / training [an] 6 This is a general question so there are no marks for application. Do not award answers about manufacturing/production as question about tertiary sector Do not award definitions or statements such as full-time employees work longer hours. Do not award vague statements about skills, experience, tiredness. Advantages of one method can be presented as disadvantages of the other method but do not award the same point twice as mirror answers are not accepted. Some points could be awarded as [k] or [an] but do not award same point twice. To gain both evaluation marks, response must clearly relate to a tertiary sector business. 2(e) Part-time: • Able to extend business hours [k] to maximise potential sales [an] • More flexible in hours of work [k] so able to cover absent workers / cover busy times [an] • Reduces labour costs (compared to full time) [k] as only pay employees for hours worked / when needed [an] • Provide different / more skills / increase the experience / more ideas [k] which otherwise may not be able to afford on a full-time basis [an] • (Some employees may not want full-time jobs so) may miss out on possible candidates if not offered part-time option [k] • Can attract well qualified employees who want to return to work but need to have flexible hours [k] Other appropriate responses should also be credited. Justification might include: A business only has to pay part-time employees for the hours worked [k] reducing its wages costs [an]. However, using full-time workers means they can provide a consistent service [k] leading to customer loyalty [an]. Therefore, I think full-time employees are better especially for a tertiary sector business as quality of service is likely to be an important way customers judge the business [eval] and therefore more likely to return, ensuring sales. [eval] Other appropriate responses should also be credited. (a) To earn marks, you need to define 'opening balance' as the amount of cash a business has at the start of a month or trading period. A partial definition, such as 'cash that a business has,' earns one mark. (b) To earn marks, you need to state two distinct ways a business can increase productivity, such as improving labour skills/training, increasing motivation, using automation/new technology, improving material quality, or reorganising factory layout.

Cambridge IGCSE Business Studies

IGCSE Business Studies Financial information and decisions past paper questions

Questions on business finance, cash flow, and income statements and balance sheets.

97 free questions from 2017–2021, each with its marking scheme. Open the full topical bank to filter by subtopic, paper, and year.

Financial information and decisions in IGCSE Business Studies exams, 2020–2025

Across 2020–2025, Financial information and decisions accounted for 110 questions worth 2,200 marks in Cambridge IGCSE Business Studies papers.