Subject: Business | Level: GCSE | Exam Board: AQA
Mastering calculations is the secret weapon for top grades in GCSE Business. This guide demystifies every formula you need, showing exactly how examiners award marks for method and analysis.
Revision Notes & Key Concepts
Key Terms & Definitions
- Revenue
- The total amount of money brought in by a company's operations, measured by price × quantity.
- Cost of Sales
- The direct costs attributable to the production of the goods sold in a company.
- Gross Profit
- The profit a company makes after deducting the costs associated with making and selling its products.
- Net Profit
- The amount of money left over after all operating expenses, interest, and taxes have been deducted from revenue.
- Net Cash Flow
- The difference between total cash inflows and total cash outflows over a specific period.
- Liquidity
- The ability of a business to pay its short-term debts.
Worked Examples
Worked Example
Question: A business sells 400 units at £15 each. Its cost of sales is £2,500 and other expenses are £1,200. Calculate the Net Profit Margin. Show your working. (4 marks)
Solution: **Step 1: Calculate Revenue** Revenue = Price × Quantity = £15 × 400 = £6,000 **Step 2: Calculate Gross Profit** Gross Profit = Revenue − Cost of Sales = £6,000 − £2,500 = £3,500 **Step 3: Calculate Net Profit** Net Profit = Gross Profit − Other Expenses = £3,500 − £1,200 = £2,300 **Step 4: Calculate Net Profit Margin** Net Profit Margin = (Net Profit ÷ Revenue) × 100 = (£2,300 ÷ £6,000) × 100 = 38.33% **Final Answer**: 38.33%
Worked Example
Question: A business is considering buying a new machine for £80,000. It is expected to generate total profits of £24,000 over its 4-year life. Calculate the Average Rate of Return (ARR). (3 marks)
Solution: **Step 1: Calculate Average Annual Profit** Average Annual Profit = Total Profit ÷ Number of Years = £24,000 ÷ 4 = £6,000 **Step 2: Calculate ARR** ARR = (Average Annual Profit ÷ Cost of Investment) × 100 = (£6,000 ÷ £80,000) × 100 = 7.5% **Final Answer**: 7.5%
Worked Example
Question: In January, a business had an opening balance of £1,500. Total inflows were £4,000 and total outflows were £4,800. Calculate the closing balance for January and explain one consequence for the business. (4 marks)
Solution: **Calculation**: Net Cash Flow = Total Inflows − Total Outflows = £4,000 − £4,800 = -£800 Closing Balance = Opening Balance + Net Cash Flow = £1,500 + (-£800) = £700 **Explanation**: The business has a positive closing balance of £700, meaning it remains solvent. However, because the net cash flow was negative (-£800), the business is spending more than it is earning. A consequence of this is that if the trend continues in February, the business may run out of cash and require an overdraft to pay its short-term debts like supplier invoices.
Practice Questions
Question: A coffee shop's revenue increased from £50,000 in 2022 to £62,000 in 2023. Calculate the percentage change in revenue. (2 marks)
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Question: A business has a Gross Profit of £45,000 and Revenue of £150,000. Calculate the Gross Profit Margin. (2 marks)
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Question: An investment costs £120,000 and yields a total profit of £36,000 over 3 years. Calculate the ARR. (3 marks)
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Question: Explain one impact on a business of a falling Net Profit Margin. (3 marks)
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Question: In May, a business forecasts Total Inflows of £12,000 and Total Outflows of £15,000. The Opening Balance is £4,000. Calculate the Closing Balance. (3 marks)
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