Business 0450 · IGCSE · Cash-flow forecasting and working capital
Cash-flow forecasting and working capital — practice question
CPF is a clothing retailer. It is a private limited company. It operates 4 shops and employs 30 people. The Finance Director is worried about the level of current assets because working capital is important. Retained profit is also low. CPF’s directors are planning to grow the business by opening a new shop. A suitable long-term finance source will have to be chosen. The expansion plan will influence many of CPF’s stakeholder groups.
(a)[2]
Define the term ‘retained profit’.
(b)[2]
Define the term ‘current assets’.
(c)[4]
Outline two reasons why working capital matters to CPF.
(d)[6]
Explain one way each of the following stakeholder groups could be affected by CPF’s plans to expand its business:
Employees:
Suppliers:
(e)[6]
Do you think a private limited company is better off using debt (e.g. a loan) or equity (issuing more shares) as a source of long-term finance? Justify your answer.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Profit that is left in the business or put back into it after all payments have been made” …