O Level Business: Financial information and decisions — Practice Questions (Cambridge 7115)

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs — Cambridge International holds copyright in its own papers. Use these alongside the official past papers available from your board.

Each question practises a skill tested in the June 2024 Paper 12. After each answer there is an examiner insight, a mark-scheme insight or a tip and, where one matches, the real question to try next.

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Questions

1. Last year a printing business had revenue of $420 000, profit of $84 000 and capital employed of $560 000. Work out its ROCE as a percentage, showing your method. [2]

2. A clothing shop had revenue of $250 000 and cost of sales of $160 000 last year. Calculate its gross profit margin. Show your working. [3]

3. A hairdressing business with two salons wants to improve its profit margin. Outline two ways it could do this. [4]

4. A toy wholesaler has current assets of $66 000 and current liabilities of $40 000. (a) Calculate its current ratio. (b) State what this result suggests about the wholesaler’s liquidity. [3]

5. Identify two external users of a business’s accounts and state what each would want to find out from them. [4]

6. A garden centre’s cash-flow forecast for March shows an opening balance of $4 500, total cash inflows of $12 300 and total cash outflows of $14 100. Calculate the closing balance for March. [2]

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Answers

1. ROCE = (profit ÷ capital employed) × 100 = (84 000 ÷ 560 000) × 100 [1] = 15% [1].

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 2(b)): A common mistake was using revenue instead of profit. Some candidates left out the % sign, which the examiners said suggests limited understanding of the concept.

Source for the examiner insights on this page: Cambridge O Level Business Studies 7115 June 2024 Principal Examiner Report for Teachers, Paper 7115/12 section, paraphrased.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 2(b).

2. Gross profit = revenue − cost of sales = 250 000 − 160 000 = $90 000 [1]. Gross profit margin = (gross profit ÷ revenue) × 100 = (90 000 ÷ 250 000) × 100 [1] = 36% [1].

Tip: Work out gross profit first, then divide by revenue — not by cost of sales.

3. Any two, each with a link to the salons: raise prices [1], for example charging more for haircuts or colouring treatments, so each sale earns more profit [1]; reduce variable costs [1], for example buying shampoo and hair dye in bulk from a cheaper supplier [1]; reduce fixed costs [1], for example negotiating lower rent for one of the two salons [1].

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 2(c)): The most common error was giving ways to increase sales, which does not by itself raise the profit margin. Some candidates also mixed up price and cost — they are different concepts, so use the right word.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 2(c).

4. (a) Current ratio = current assets ÷ current liabilities = 66 000 ÷ 40 000 [1] = 1.65 [1]. (b) The wholesaler has more current assets than current liabilities, so it should be able to pay its short-term debts — its liquidity looks acceptable [1].

Tip: The current ratio is written as a number (or as 1.65 : 1), not as a percentage.

5. Any two users, 2 marks each: Banks [1] — want to know whether the business makes enough profit to repay a loan and its interest before lending [1]. Suppliers [1] — want to check the business’s liquidity so they know it can pay for goods bought on credit [1]. Government [1] — wants to check profit so the correct amount of tax is paid [1].

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 2(e)): Better answers explained how external users such as banks, suppliers or governments use the accounts; shareholders was the most common incorrect answer. Some candidates misread the question and wrote about sources of finance instead.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 2(e).

6. Closing balance = opening balance + inflows − outflows = 4 500 + 12 300 − 14 100 [1] = $2 700 [1].

Tip: Net cash flow here is −$1 800 (outflows exceed inflows), but the positive opening balance keeps the closing balance above zero. Do not confuse net cash flow with the closing balance.

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Where marks are usually lost

• Using revenue instead of profit in ROCE, or dividing by cost of sales in gross profit margin.
• Leaving out the % sign on ratios that are percentages, or adding one to the current ratio, which is not a percentage.
• Suggesting ways to increase sales when the question asks how to improve the profit margin.
• Writing “price” when you mean “cost”, or the other way round.
• Misreading a question about users of accounts as one about sources of finance.