Finance

What Finance covers

Finance is examined in Component 02, Business 2: operations, finance and influences on business. It covers the role of the finance function, sources of finance, revenue, costs, profit and loss, break-even, cash, liquidity and profit and cash flow forecasts.

The 6 subtopics

Each one has its own page.

• The role of the finance functionWhat the finance function does, the information it provides, how it supports planning and decisions across marketing, HR and operations, and why lenders, investors and HMRC need it.Open →
• Sources of financeWhy new and established businesses need finance, owners' capital, bank loans, overdrafts, trade credit, retained profit, sale of assets, new partners, share issues and crowdfunding.Open →
• Revenue, costs, profit and lossRevenue, fixed, variable and total costs, profit and loss, gross and net profit and their margins, the average rate of return, and worked calculations for small businesses.Open →
• Break-evenThe break-even formula and contribution per unit, worked break-even quantities rounded up, how price and cost changes move break-even, reading a break-even chart, and the method's limitations.Open →
• Cash, liquidity and profitWhy cash and liquidity matter, the difference between cash and profit, how selling on credit or overstocking drains cash, and how a business improves its cash position.Open →
• Cash flow forecastsThe rows of a cash flow forecast, net cash flow and opening and closing balances with worked examples, anticipating shortages, why banks ask for one, and its limitations.Open →

What you need to know

Answer each one before you reveal it.

Take Finance further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Fixed costs vs Variable costs

  Fixed costs: spending that stays the same whatever the level of output. Variable costs: spending that rises and falls directly with output.

• Gross profit vs Net profit

  Gross profit: revenue minus the direct cost of the goods sold. Net profit: the surplus left after every expense has been deducted.

• Cash vs Profit

  Cash: money held by the business at a given moment. Profit: the surplus of revenue over costs across a period.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is the finance function of a business?

   Model answer

   The finance function manages a business's money. The finance function records income and spending, prepares accounts and controls budgets.

2. 2

   What are the main purposes of the finance function?

   Model answer

   The finance function provides financial information to managers and owners. Financial information from the finance function supports planning and decision making.

3. 3

   What kinds of financial information does the finance function provide?

   Model answer

   The finance function reports revenue, costs, profit, cash balances and forecasts. Managers use these figures to judge how the business is performing.

4. 4

   How does the finance function support business planning?

   Model answer

   The finance function forecasts future revenue, costs and cash so managers can set realistic targets. A plan can then show how much finance a new project will need.

5. 5

   How does the finance function help managers make decisions?

   Model answer

   The finance function works out whether a decision, such as launching a product, is likely to be profitable. Managers can compare options using break-even and average rate of return.

6. 6

   How does the finance function influence the marketing department?

   Model answer

   The finance function sets the marketing budget and checks whether campaigns are affordable. A campaign may be cut back if it does not pay for itself.

What is inside Levo

Six ways to work the same material.

Finance revision questions

What does Finance cover in OCR GCSE Business?

6 subtopics: the role of the finance function, sources of finance, revenue, costs, profit and loss, break-even, cash, liquidity and profit and cash flow forecasts. Each one has its own page with questions and model answers.

How is Finance organised?

By the OCR J204 specification, subtopic by subtopic, so it matches the order you are taught it in.