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5. Finance

6 dot points across 6 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How does a business decide whether an investment is worth making?

Average rate of return: the purpose of investment appraisal, the calculation of average annual profit and the average rate of return as a percentage of the initial investment, the interpretation of ARR, and its use and limitations when comparing investments.
A focused answer to the OCR GCSE Business J204 average rate of return calculation, covering average annual profit, ARR as a percentage of the initial investment, how to interpret the result, and the uses and limits of ARR for comparing investments.
10 min answer →

How many units must a business sell before it starts to make a profit?

Break-even: the concept of break-even, the calculation of break-even output using the formula, interpretation of a break-even chart, the margin of safety, and the usefulness and limitations of break-even analysis.
A focused answer to OCR GCSE Business J204 topic 5.4, covering the concept of break-even, the break-even output formula, the margin of safety, how to read a break-even chart, and the uses and limits of break-even analysis.
12 min answer →

How does a business make sure it always has enough money to pay its bills?

Cash and cash flow: the importance of cash, the consequences of cash flow problems, the purpose of a cash flow forecast, the calculation and interpretation of inflows, outflows, net cash flow and opening and closing balances, and how forecasts aid decision-making.
A focused answer to OCR GCSE Business J204 topic 5.5, covering why cash matters, the consequences of cash flow problems, the purpose of a cash flow forecast, and how to calculate net cash flow and opening and closing balances.
12 min answer →

How does a business work out whether it has made a profit or a loss?

Revenue, costs, profit and loss: the definition and calculation of revenue, fixed, variable and total costs, the calculation of profit or loss, the importance of profit, and the difference between cash and profit.
A focused answer to OCR GCSE Business J204 topic 5.3, covering revenue, fixed and variable and total costs, the calculation of profit or loss, why profit matters, and the difference between cash and profit.
11 min answer →

Where do businesses get their money from, and how do they choose?

Sources of finance: internal and external sources, short-term and long-term finance, the suitability of each source, and the factors a business considers when choosing how to raise money.
A focused answer to OCR GCSE Business J204 topic 5.2, covering internal and external sources of finance, short-term and long-term finance, their suitability, and how a business chooses a source.
10 min answer →

What does the finance function do, and why is it central to a business?

The role of the finance function: the purpose of finance in a business, the difference between cash and profit, the use of financial information in decision-making, and profitability including profit margins.
A focused answer to OCR GCSE Business J204 topic 5.1, covering the purpose of the finance function, the difference between cash and profit, profitability and profit margins, and how financial information guides decisions.
10 min answer →