Financial Statement:
Revenue, Cost, Profit, Loss
Unit 2 Summary - part 1
Oxford AQA IGCSE 2019 paper 2
05.
Calculate the operating profit margin for 2018. [3 marks]
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Operating Profit Margin = Operating Profit /Sales Revenue x 100
Operating Profit = Sales Revenue – Cost of Sales – Expenses
Answer = 9.2% (accept 9.16 or 9 %)
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Calculates Operating Profit ($) (1 mark)
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Calculates Operating Profit Margin (1 mark)
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Expresses the answer as a percentage (1 mark)
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Give 2 marks if rounding is done incorrectly ie. 9.15 or 9.1%
12.
A private limited company needs to raise finance so that it can invest in new technology. It has decided to apply for a bank loan rather than issue new shares. Assess the arguments for and against the decision and make a judgement. [12 marks]
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The demands of the question are to decide whether the bank loan was the correct decision for a private limited company to invest in new technology.
Indicative Content
Loan
Possible Arguments for:
• Loans can be obtained quickly which means that the investment can take place quickly allowing them to take advantage of the benefits sooner.
• The business will retain control.
Possible Arguments Against:
• Loans need to be paid back monthly with interest, this can have a negative effect on the cash flow of the business.
• Interest rates can change depending on the economic environment so a loan can be a high risk source of finance for the business.
• A loan may not be agreed by the bank, it would depend on the financial position of the business.
Issuing new shares
Possible Arguments for:
• Share capital does not have to be paid back and would therefore help the cash flow position of the business as interest won’t be added to the amount raised.
• Issuing share capital may attract new investors to the organisation who could support the business with their expansion and new technology.
Possible Arguments against:
• Existing shareholders must agree to allow a new investor to buy shares, this could be a lengthy process and could cause conflict amongst existing shareholders which would delay the investment in the new technology.
• Existing shareholders may not want to lose more control of the business, therefore this may not be a viable option.
Overall, it depends on the financial position of the business, if the business is in a strong financial position they will attract new investors and will likely get a loan. Issuing shares would be more viable if the investor could offer some advice or support with the new technology and existing shareholders agree to this option. It also depends on the amount they need to raise, a combination of the two may be appropriate if one source of finance is not sufficient for the investment.
Credit valid alternative content
Oxford AQA IGCSE 2021 paper 2
08.
This financial data relates to TAC plc for the year 2019–2020.
Revenue $26 960 million
Dividends paid $269 million
Gross Profit Margin 35.0%
Operating Profit Margin 12.8%
Calculate TAC’s gross profit for the year 2019–2020 in $ million. [2 marks]
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calculation/writes formula 26 960 x 35% (1 mark)
Answer: $9436 million or 9436 or 9436 million (2 marks) Attempts
06.
With reference to Table 1, calculate the gross profit variance.
State whether the gross profit variance is adverse or favourable. [3 marks]
Table 1
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Steps:
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82000 - 80500 = 1500 (that means revenue is smaller in reality)
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63100 + 1100 = 64200 cost is bigger in reality, so we use +)
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82000 - 63100 = 18900 is the Gross Profit budget.
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80500 - 64200 = 16300 is the Actual Gross Profit.
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18900 - 16300 = 2600 Adverse
Number 5 is the answer.
Calculates the gross profit for Budget and Actual (1 mark)
Calculates the gross profit variance (1 mark)
States that the gross profit variance is adverse (1 mark)
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Calculates the revenue variance (1 mark).
Calculates the actual costs of sales (1 mark)
Use OFR
If states correct answer of 2600 Adverse all 3 marks are awarded.
Oxford AQA IGCSE 2021 paper 2
Case study: Which way to grow?
Alec owns and manages a restaurant in San Francisco in the USA. A trained chef, he started the business 6 years ago with $250 000 of his own money and currently operates as a sole trader. He has established his business on the following core principles:
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Using local, ethically sourced ingredients.
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Minimising food waste and donating excess food to a local homeless charity.
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Prioritising good service.
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Treating his staff well, including paying above the minimum wage and investing in training unskilled employees.
The restaurant is currently open for lunch and evening meals. The market is very competitive with many local rivals but customers are often turned away due to excess demand and a lack of capacity in Alec’s restaurant. It has received many favourable reviews on social media.
The restaurant is in a popular part of the city where there are many tourist attractions. Alec has surveyed where his customers come from and the results are shown in Figure 1.
Figure 1
Where customers come from (%)
Having worked hard to establish the restaurant, Alec is happy to see the business grow steadily. He intends to extend opening times in future and start offering a breakfast menu. This gradual expansion would need some additional staff.
Alec has been frustrated that success has not brought a better financial return. He sought financial advice and was put in touch with Lucy, a local venture capitalist. She drew up an ambitious plan to accelerate the development of the business.
The Plan
move to larger premises nearby. This would triple the capacity of the restaurant. Lucy has experience in marketing and is confident the restaurant will be able to enter the market for events, such as meetings, in parts of the building. To finance the proposed expansion, funds would be raised by selling the current restaurant and Lucy would match Alec’s initial investment of $250 000 in the business. The business would become a partnership, with Alec and Lucy becoming equal partners. She feels that the restaurant should source cheaper ingredients more widely to improve profit margins.
