OxfordAQA A-Level Business: Analysis the existing internal position of a business (9725) – Practice Questions

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 – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

Questions here target section 3.3.2, Analysis the existing internal position of a business, as written in the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, whose first International AS exams are in May/June 2027 and first International A-level exams in May/June 2028. The section is International A-level only and belongs to Unit 3: Business analysis. Anyone still sitting the older 9625 specification should practise from that document.

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Questions

1. Define a “cash cow” in the Boston Matrix, and give one way a business might use the cash it generates. [2]

2. Ottercliffe Pet Foods Ltd has current assets of £1,260,000, including inventory of £540,000, and current liabilities of £720,000. Calculate its current ratio and acid test ratio. [4]

3. Ferrowyn Paints plc has operating profit of £2.34 million, non-current liabilities of £5.2 million and total equity of £7.8 million. Calculate its return on capital employed and its gearing ratio. [4]

4. Draycott Wholesale Ltd has cost of sales of £2,920,000 and trade payables of £416,000. Its inventory was £340,000 at the start of the year and £390,000 at the end. Calculate its inventory turnover and its payables days. [4]

5. Skellmere Energy plc paid total dividends of £3.15 million on 42 million shares. Its share price is £1.25. Calculate the dividend per share and the dividend yield. [4]

6. Fenwray Glass Ltd (£000): operating profit 480; non-current liabilities 800; total equity 2,400; inventory 300; trade receivables 420; cash 180; current liabilities 500. A customer who owes Fenwray £60,000 has gone out of business and will not pay.

(a) Explain how this event changes Fenwray’s statement of financial position and income statement. Ignore tax. [2] (b) Calculate Fenwray’s ROCE and acid test ratio before and after the amendment. [4]

7. Explain two benefits to a hotel chain of treating each hotel as a profit centre. [4]

8. Explain two limitations of using a company’s published financial statements to judge how well it will perform in future. [4]

9. Vennick Beverages sells four brands:

Brand	Market growth (% a year)	Relative market share
Glimmerspring sparkling water	15	1.4
Old Mill cordial	1	2.0
Zest Shot energy drink	18	0.3
Tonic Royale mixer	−2	0.5

(a) Place each brand in the correct Boston Matrix category. [4] (b) Analyse how this portfolio analysis could help Vennick plan its marketing for next year. [6]

10. Kestrine Hotels plc runs city-centre hotels. The founder, who led with a democratic style and rewarded teams for guest satisfaction scores, has retired. Analyse two factors that are likely to have shaped Kestrine’s culture. [6]

11. Kestrine Hotels plc’s data (£m). Industry averages: ROCE 11%, operating profit margin 12%, gearing 45%.

	Year 1	Year 2
Revenue	24.0	27.0
Operating profit	3.6	3.51
Non-current liabilities	9.12	14.04
Total equity	14.88	12.96
Current ratio	0.9	0.75

In Year 2 Kestrine borrowed to open two hotels, both opening in the final quarter. Evaluate whether the data show that Kestrine’s performance has worsened. [12]

12. Kestrine’s new chief executive wants to replace its team-based, guest-focused culture with one built on individual sales targets and cost control. Evaluate whether she should change Kestrine’s culture. [10]

Answers

1. A product with a high share of a low-growth market [1]. Its surplus cash can fund promotion of question marks or continued investment in stars [1]. [2] Examiner insight: A definition naming only one axis (for example “a best-selling product”) gains less credit than one that names both market growth and market share.

2. Current ratio = 1,260,000 ÷ 720,000 [1] = 1.75 [1]. Acid test = (1,260,000 − 540,000) ÷ 720,000 [1] = 1.0 [1]. [4] Examiner insight: Ratios are written as a number (1.75 or 1.75:1), not a percentage; adding a % sign shows the formula has been misunderstood.

3. Capital employed = 5.2 + 7.8 = £13 million [1]; ROCE = 2.34 ÷ 13 × 100 = 18% [1]. Gearing = 5.2 ÷ 13 × 100 [1] = 40% [1]. [4] Examiner insight: Show capital employed as a separate line: if the final figure is wrong, a correct method is still visible to the marker.

4. Average inventory = (340,000 + 390,000) ÷ 2 = £365,000 [1]; inventory turnover = 2,920,000 ÷ 365,000 = 8 times [1]. Payables days = 416,000 ÷ 2,920,000 × 365 [1] = 52 days [1]. [4] Examiner insight: When opening and closing inventory are both given, using only the closing figure gives about 7.49 times, which will not match the expected answer.

5. Dividend per share = 3,150,000 ÷ 42,000,000 [1] = £0.075 (7.5p) [1]. Dividend yield = 0.075 ÷ 1.25 × 100 [1] = 6% [1]. [4] Examiner insight: Keep units consistent: dividing 7.5 (pence) by 1.25 (pounds) gives 600%, an answer that should prompt you to check.

6. (a) Trade receivables fall by £60,000, and retained earnings (total equity) fall by £60,000 [1]. The bad debt is an expense, so operating profit falls by £60,000 to £420,000 [1]. (b) Before: ROCE = 480 ÷ (800 + 2,400) × 100 = 15%; acid test = (900 − 300) ÷ 500 = 1.2 [1]. After: capital employed = 800 + 2,340 = 3,140 [1]; ROCE = 420 ÷ 3,140 × 100 = 13.38% [1]; acid test = (840 − 300) ÷ 500 = 1.08 [1]. [6] Examiner insight: Both sides of the statement must change; amending only the asset line leaves net assets and total equity out of balance.

7. Each hotel’s revenue and costs are measured, so head office can see which hotels earn most and where to invest [1], for example extending a hotel with high occupancy and profit rather than a struggling one [1]. Hotel managers are judged on their own results [1], which can motivate them to control costs and raise guest spending [1]. [4] Examiner insight: Each benefit needs a reason and a consequence in the hotel context; two bare benefits with no development earn little credit.

8. The statements are historic [1], so a past profit says little about a market that has since changed, such as a new rival entering [1]. They omit morale, brand reputation and other non-financial factors [1]; falling morale may not show in profit until later years [1]. [4] Examiner insight: Build on the limits the specification names, historic data and missing non-financial factors, and develop each in context; a vague “accounts can be wrong” earns little without that support.

9. (a) Glimmerspring: star [1]. Old Mill: cash cow [1]. Zest Shot: question mark [1]. Tonic Royale: dog [1]. (b) Old Mill generates surplus cash with little promotion needed [1], so Vennick can use it to fund marketing elsewhere [1]. Glimmerspring needs continued spending to hold share in a fast-growing market [1], so it should keep a large promotion budget [1]. Zest Shot needs a decision: spend heavily to build share or withdraw [1], while Tonic Royale’s falling market suggests cutting its budget unless bars buy it with other Vennick lines [1]. [10] Examiner insight: Analysis credit comes from linking each category to a specific spending decision; classifying products again in part (b) earns nothing extra.

10. Leadership style: the founder’s democratic approach involved staff in decisions [1], which is likely to have created a culture of trust where staff use their own judgement with guests [1], so service is personal and staff stay [1]. Reward systems: team rewards for satisfaction scores [1] encourage staff to cooperate and put guests first [1], so the culture is customer-focused rather than competitive between individuals [1]. [6] Examiner insight: Use the factors in the case; a general list of culture influences with no link to Kestrine gains little credit.

11. Revenue rose by 12.5%, but the operating profit margin fell from 15% to 13% [1]. ROCE fell from 3.6 ÷ (9.12 + 14.88) × 100 = 15% to 3.51 ÷ (14.04 + 12.96) × 100 = 13% [1], and gearing rose from 38% to 52% [1]. Liquidity fell, with the current ratio down from 0.9 to 0.75 [1]. Taken alone, this suggests worse performance and higher risk [1]. However, both measures of profitability are still above the industry averages of 11% and 12% [1], so Kestrine remains more profitable than its rivals [1]. Context explains much of the fall: the two new hotels are fully counted in Year 2 capital employed but traded for only one quarter [1], so their profit is not yet in the figures [1]. Hotels are paid quickly by guests, so a current ratio below 1 may be normal [1]. The real risk is gearing above the 45% average, which raises interest costs if rates rise [1]. Judgement: performance has worsened only slightly, mostly because of timing, and the next full year’s ROCE and gearing will show whether the expansion is working [1]. [12] Examiner insight: The top marks need a justified conclusion that uses the trend, the benchmark and the context together; a list of rises and falls is unlikely to gain the highest credit.

12. For: team rewards and a democratic culture may have let costs rise [1]; individual targets could raise revenue per guest and productivity [1]. A new leader can use the change to set a clear direction [1]. Against: the existing culture is positive and strong, built on guest satisfaction [1], which is part of Kestrine’s brand reputation [1]. Individual sales targets may make staff compete rather than help each other [1], and pushing sales on guests may cut satisfaction scores [1]. Changing a strong culture takes years and experienced staff may leave [1], raising recruitment costs [1]. Judgement: she should keep the guest-focused culture and add cost control through team targets, since a full change risks the reputation that keeps profitability above the industry average [1]. [10] Examiner insight: Evaluation should weigh the reasons for changing culture against the problems of changing it in this business, then reach a conclusion that follows from that weighing.

Where marks are usually lost

• Using total assets instead of non-current liabilities plus total equity for capital employed.
• Leaving inventory in the acid test ratio.
• Mixing pence and pounds in dividend yield.
• Using closing rather than average inventory for inventory turnover.
• Amending one line of a statement without changing the matching line.
• Describing ratio changes with no trend, benchmark or context.
• Classifying Boston Matrix products without linking them to marketing decisions.
• Writing about culture in general terms instead of using the case.
• Ending an evaluation without a clear, supported judgement.

Next steps

• Shorter recall version: revision notes
• Full teaching: study guide
• Previous section: mission, objectives and SWOT practice
• Hub page: OxfordAQA A-level Business
• Tick off the spec: course checklist
• Check weak spots: all free 10-minute diagnostics
• Book a free trial class

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Published by OxfordAQA.