Edexcel GCSE (9-1) Business (1BS0) · Spec 2.4.1 and 2.4.2
Making financial decisions
Read the notes, then try the questions. Each one is marked the moment you press Check, and shows the right answer and why.
Key ideas
- Gross profit = revenue - cost of sales. Net profit = gross profit - other expenses. Margins show profit as a percentage of revenue.
- Average rate of return (ARR) compares average yearly profit with the cost of an investment, to judge if it is worthwhile.
- Data helps decisions, but has limits. Last year's sales may not predict this year's, and a small survey may not represent all customers.
- Market share is a firm's sales as a percentage of total market sales.
Key terms
- Gross profit
- Revenue minus cost of sales.
- Net profit
- Gross profit minus other expenses and overheads.
- Average rate of return (ARR)
- Average annual profit from an investment as a percentage of its cost.
- Market share
- A firm's sales as a percentage of the total sales in the market.
Common mistakes
- Dividing a percentage change by the new figure. Divide by the original.
- Learning the ARR formula upside down. It is average yearly profit divided by cost, x 100.
- Forgetting to round as asked or to show units.
Exam tip
Calculate questions are worth marks per step, and formulae are not given. Write the formula, substitute, then answer with units. Marks can still follow an early slip if you use your own figure correctly.
Free practice questions
6 questions, 9 marks. Answer, then press Check. The marking guide explains how the marks are worked out. Nothing is saved.
- Question 1 · Multiple choice[1 mark]
Which is a limitation of using last year's sales figures to forecast this year's sales?
- Question 3 · True or false[4 marks]
Decide whether each statement about using financial data in decisions is true or false.
1. Financial data can help a business decide whether a new project is worth the investment.
2. Past financial data guarantees how a business will perform in the future.
3. Profit figures alone show how much cash a business has in the bank.
4. Comparing a firm's figures with a competitor's can show how well it is performing.
- Question 4 · Multiple choice[1 mark]
A survey of 60 gym members finds 60% want vegan snacks. What is a limitation of this data?
- Question 5 · Multiple choice[1 mark]
Which of the following correctly defines gross profit?
- Question 6 · Multiple choice[1 mark]
What is the average rate of return (ARR) used to assess?