Business 7115 · O Level · Business finance: needs and sources
Business finance: needs and sources — practice question
CPF operates as a clothing retailer and is set up as a private limited company. It runs 4 shops and employs 30 people. The Finance Director is worried about the level of current assets, since working capital matters. Retained profit is also quite low. CPF’s directors are intending to grow the business by launching a new shop. They will need to choose an appropriate source of long-term finance. This expansion plan will have consequences for 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 for CPF.
(d)[6]
Explain one possible effect on each of the following stakeholder groups caused by CPF’s plans to expand its business:
Employees.
Suppliers.
(e)[6]
Do you think it is better for a private limited company to rely on debt (e.g. a loan) or equity (issuing more shares) as its long-term finance source? 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 put back into the business” …