Financial Management

What Financial Management covers

Financial management can be examined on any of the three papers, and carries most of the calculation in the course. It covers financial objectives, the analysis used to judge performance, where a business gets its money, and how it improves cash flow and profit.

The 15 subtopics

Each one has its own page. AQA AS Business students sit this topic in the first year.

• Financial objectives and return on investmentRevenue, cost, profit and cash flow objectives, and calculating return on investment.Open →
• Gross profit, operating profit and profit for the yearThe three levels of profit, what is deducted at each, and how each is calculated.Open →
• Budgets and variance analysisWhat a budget is for, favourable and adverse variances, and what budgeting gives a business.Open →
• Cash flow forecastsCash inflows and outflows, net cash flow and opening and closing balances, worked forecasts, what a negative balance signals, and why forecasts are useful to lenders but only as good as their estimates.Open →
• Break-even, contribution and the margin of safetyCalculating break-even output, contribution per unit, total contribution and the margin of safety.Open →
• Break-even charts and how they shiftWhat a break-even chart must show, and what happens to it when price, fixed costs or variable costs change.Open →
• The uses and limits of break-even analysisSetting targets, testing prices and judging viability, and the assumptions the analysis rests on.Open →
• Profit margins, payables and receivablesGross, operating and net profit margin, and how payables and receivables affect cash flow.Open →
• Internal sources of financeRetained profit as internal finance, its advantages, and the limits on what it can fund.Open →
• Short-term external financeOverdrafts and debt factoring, what each costs, and the needs they are suited to.Open →
• Share capital, loans, venture capital and crowd fundingThe long-term external sources, what each demands in return, and what each suits.Open →
• Choosing a source of financeAmount, purpose, duration, cost, risk and the effect on ownership.Open →
• Methods of improving cash flowOverdrafts, extended payment terms, factoring, sale and leaseback and reducing stock.Open →
• Methods of improving profitsRaising sales and prices, cutting overheads and unit costs, and improving asset use.Open →
• The difficulties and trade-offs in improving cash flow and profitWhy customers and suppliers resist, and how cash flow and profit measures pull against each other.Open →

What you need to know

Answer each one before you reveal it.

Take Financial Management further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Revenue vs Profit

  Revenue: money received from selling output. Profit: surplus remaining after costs are deducted.

• Cash flow vs Profitability

  Cash flow: movement of money into and out of a business. Profitability: ability to generate surplus relative to sales or capital.

• Current assets vs Current liabilities

  Current assets: resources expected to become cash within one year. Current liabilities: amounts due within one year.

Questions from this topic

Each one with the model answer underneath.

1. 1

   Why do businesses set financial objectives?

   Model answer

   Financial objectives provide measurable targets that guide decision-making, enable performance evaluation, and help coordinate activities across different business functions towards common financial goals.

2. 2

   What is return on investment (ROI)?

   Model answer

   Return on investment measures the efficiency of an investment by expressing the gain or loss relative to the amount invested, typically as a percentage.

3. 3

   State the formula for calculating return on investment.

   Model answer

   ROI = (Net Gain ÷ Cost of Investment) × 100

4. 4

   What does 'net gain' refer to in the ROI formula?

   Model answer

   Net gain refers to the profit or benefit received from an investment after deducting the original cost of the investment.

5. 5

   Calculate the return on investment when net gain = £23,000, cost of investment = £74,000.

   Model answer

   Return on investment = (23000 ÷ 74000) × 100 = 31.1 %.

6. 6

   What are revenue objectives?

   Model answer

   Revenue objectives set targets for the total income a business aims to generate from selling goods or services over a specified period.

What is inside Levo

Six ways to work the same material.

Financial Management revision questions

Is Financial Management examined at AS in AQA Business?

Yes. It sits in Papers 1, 2 and 3, which you take in the first year, so it is on the AS paper as well as counting towards the full A level.

What does Financial Management cover in AQA AS-Level Business?

15 subtopics: financial objectives and return on investment, gross profit, operating profit and profit for the year, budgets and variance analysis, cash flow forecasts, break-even, contribution and the margin of safety, break-even charts and how they shift, the uses and limits of break-even analysis, profit margins, payables and receivables, internal sources of finance, short-term external finance, share capital, loans, venture capital and crowd funding, choosing a source of finance, methods of improving cash flow, methods of improving profits and the difficulties and trade-offs in improving cash flow and profit. Each one has its own page with questions and model answers.

How is Financial Management organised?

By the AQA 7132 specification, subtopic by subtopic, so it matches the order you are taught it in.