This module covers how a business reports its results and position: the income statement, the statement of financial position, a small set of ratios, and the limits of what they show. Case questions use these to ask whether a business is profitable, whether it can pay its bills and how it has changed.
Both Business Studies 0450 and Business 0264 cover financial information, but the exact statements, ratios and wording can differ by exam year. Check the syllabus for your year on the Cambridge subject page, then use this module for the skills underneath.
What should you know before starting?
You need percentages, basic subtraction and division, and rounding. It helps to have met profit, costs and revenue in costs, revenue and break-even and cash flow in cash flow and finance.
If you can say what revenue minus costs gives, you are ready.
What does the topic look like in one example?
Kedai Roti Sri Murni is a bakery in Ipoh. In its first year, revenue is RM240,000 and cost of sales is RM150,000.
- Gross profit = 240,000 − 150,000 = RM90,000. Expenses of RM60,000 bring net profit to RM30,000. See revenue, gross profit and net profit.
- Statement of financial position. It owns RM160,000 of assets and owes RM20,000 within a year plus a RM50,000 loan, so net assets are RM90,000. See reading the statement.
- Ratios. Gross profit margin is 90,000 ÷ 240,000 × 100 = 37.5%. Current assets of RM40,000 against current liabilities of RM20,000 give a current ratio of 2:1. See calculating ratios.
- Over time. If next year’s margin were 35%, what changed, and why? See comparing across periods.
- Limits. None of this shows how much of the RM18,000 owed by customers will be paid on time. See what statements cannot reveal.
In what order should you study the lessons?
- Distinguish revenue, gross profit and net profit comes first, because every other lesson uses these figures.
- Read a statement of financial position follows, since it introduces the second statement and the terms current and non-current.
- Calculate a relevant ratio from supplied figures uses both statements, so it is easier once they are secure.
- Compare a ratio across periods with context turns calculations into judgements.
- Explain what statements cannot reveal rounds out the module and links to cash flow and finance and external business conditions.
Finish with the mixed practice set.
What are the common traps?
- Skipping cost of sales when calculating profit.
- Treating a bank overdraft as cash, when it is a current liability.
- Using the wrong figure in a ratio, such as net profit in a gross margin or leaving inventory in the acid test.
- Writing “it went down” without a figure, a cause from the case and a judgement.
- Confusing percentage points with percent change.
- Treating profit as cash, or one ratio as proof that a business is healthy.
How should you use the practice set?
Work the five lessons first, then attempt the practice set on paper and mark it yourself. The routing section at the end sends each kind of error back to a lesson. The ratios tool and cash versus profit bridge let you test your understanding with fictional figures.
For wider guidance, see the Business learning guide, and the study route shows where this module sits among the others. If a teacher could help, our online one-to-one Business tuition is built around exactly this kind of case work. External conditions follow in the next module.