2.4 finance

• Finance exam covers making financial decisions, focusing on the finance department and two main topics: business calculations and understanding performance
• Business calculations involve key terms, a few calculations, and are generally straightforward with not many marks allocated to them
• In business calculations, profit, costs, cash flow, and more are analyzed to understand how profit works
• Gross profit is calculated by subtracting the cost of sales from revenue, while net profit considers operating expenses in addition to cost of sales
• Profit margins are crucial and are calculated as a percentage of revenue, with gross profit margin and net profit margin being key indicators of financial health
• To calculate profit margins, divide the type of profit (gross or net) by revenue and multiply by 100 to get the percentage
• Gross profit margin example: 400,000 (gross profit) / 600,000 (revenue) * 100 = 66.7%
• Net profit margin example: 100,000 (net profit) / 600,000 (revenue) * 100 = 16.7%
• Profit Margin Calculations:

  • Calculate the bits in Orange to find the bits in red
  • Revenue must be higher than costs for a profitable margin
  • Average Rate of Return:
  • Concept: What percentage of the cost spent on an investment is earned as an average profit
  • Calculation: Divide the average annual profit by the investment cost, then multiply by 100
  • Example: Investment of £1 million with £500,000 annual profit = 50%
  • 2.4.2:
  • Focuses on using graphs and charts
  • Importance of reading and interpreting charts in Paper 2
  • Types of charts: line graphs, bar charts, pie charts
  • Line Graphs:
  • Ideal for showing trends over time
  • Bar Charts:
  • Effective for making comparisons between different criteria
  • Pie Charts:
  • Best for showing proportions, like market share
  • Financial Data:
  • Identify strengths and weaknesses of a business
  • Marketing Data:
  • Obtained from market research
  • Consider market share and market size
  • Limitations of Data:
• LIMITATIONS OF DATA

  • Data may be based on projections
  • Businesses can make poor decisions if they prioritize wrong data
  • Practice Questions:
  • Essential for mastering calculations and key terms
  • Build confidence through practice and understanding the concepts