OxfordAQA IGCSE Accounting: Appraising business performance, cash and profit (9215) – Revision Notes

These notes are aligned to the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards. They condense the part of specification section 3.5 on appraising business performance with financial statements and ratios, and on cash versus profit. The full explanations and worked examples are in the study guide. When you are ready, try the practice questions, the course hub, the checklist and the free diagnostics. Amounts are in dollars.

The nine measures in one table

The specification says the formulae are in OxfordAQA’s guide “Formulae for accounting ratios”. These are the standard forms. Confirm them against that guide.

Measure	Formula	Answer as
Gross profit margin	gross profit / revenue x 100	%
Markup	gross profit / cost of sales x 100	%
Profit in relation to revenue	profit from operations / revenue x 100	%
Return on capital employed	profit from operations / capital employed x 100	%
Rate of inventory turnover	cost of sales / average inventory	times
Current ratio	current assets : current liabilities	x : 1
Liquid capital ratio	(current assets - inventory) : current liabilities	x : 1
Trade receivable days	trade receivables / credit sales x 365	days
Trade payable days	trade payables / credit purchases x 365	days

Supporting definitions

• Profit from operations = gross profit - expenses, before loan interest. With no loan interest it equals profit for the year. Profit in relation to revenue and ROCE both use it, as OxfordAQA’s own 9215 mark scheme (Paper 2, May/June 2026) does.
• Capital employed = non-current assets + current assets - current liabilities = capital + non-current liabilities.
• Average inventory = (opening + closing) / 2.
• Working capital = current assets - current liabilities.
• Gross profit = revenue - cost of sales.
• Profit for the year = gross profit - expenses.

Method in steps

1. Write the formula.
2. Substitute the figures from the income statement or statement of financial position.
3. Calculate and give the unit.
4. Compare with another year or business.
5. Explain the reason and give a judgement.

Worked reminder: Aldmoor Fabrics

Revenue 200,000, cost of sales 130,000, expenses 46,000, capital employed 160,000. Opening inventory 14,000, closing 16,000. Credit sales 146,000, trade receivables 18,000, credit purchases 73,000, trade payables 9,000. Current assets 52,000 (including inventory 16,000), current liabilities 26,000.

Measure	Working	Result
Gross profit margin	70,000 / 200,000 x 100	35.0%
Markup	70,000 / 130,000 x 100	53.8%
Profit in relation to revenue	24,000 / 200,000 x 100	12.0%
ROCE	24,000 / 160,000 x 100	15.0%
Inventory turnover	130,000 / 15,000	8.67 times
Current ratio	52,000 : 26,000	2.00 : 1
Liquid capital ratio	36,000 : 26,000	1.38 : 1
Receivable days	18,000 / 146,000 x 365	45.0 days
Payable days	9,000 / 73,000 x 365	45.0 days

What a change usually means

Use these as starting points, then tie them to the facts in the question.

Ratio moves	Possible meaning	Possible causes
Gross profit margin down	Lower profit on each sale	Price cuts, discounts, dearer supplies, wastage
Markup down	Smaller addition on cost	Same causes as margin
Profit in relation to revenue down	Expenses growing faster than revenue	Wages, rent, advertising, interest
ROCE down	Weaker return on investment	Lower profit, or more capital added without extra profit
Inventory turnover down	Inventory selling more slowly	Over-buying, weak demand, obsolete lines
Inventory turnover up	Faster sales, less cash tied up	Better buying, strong demand (but risk of running out)
Current ratio down	Less cover for short-term debts	More payables or overdraft, less cash
Liquid capital ratio below 1	Relying on selling inventory to pay debts	Cash used up, inventory built up
Receivable days up	Customers paying slower	Weak credit control, longer terms
Payable days up	Taking longer to pay suppliers	Cash shortage, or a negotiated deal; risks goodwill

A higher ratio is not always better. A very high current ratio can mean idle cash or too much inventory. Very few receivable days might mean credit terms are so tight that sales are lost.

Margin versus markup

Same gross profit, different base. If gross profit is 70,000 on revenue of 200,000 and cost of sales of 130,000, the margin is 35.0% and the markup is 53.8%. Markup is always larger than margin when the margin is below 100%. Do not mix them up.

Cash versus profit

Term	Meaning
Profit	Revenue less expenses, with sales and costs recorded when they arise
Cash	Money actually received and paid, held in the bank or as cash
Liquidity	Ability to pay debts as they fall due; depends on cash and quickly convertible assets

Why they differ

• Credit sales: profit rises now, cash arrives later.
• Credit purchases and accruals: costs are recorded now, cash leaves later.
• Depreciation: reduces profit, no cash leaves.
• Buying non-current assets: cash leaves, profit is not reduced by the whole cost.
• Drawings: reduce cash and capital, not profit.
• Loans and extra capital: raise cash, not profit.
• Inventory build-up: uses cash, no effect on profit until the goods are sold.

Transaction grid

Transaction	Profit	Cash	Current ratio (if above 1)
Cash sale at a profit	Up	Up	Up
Credit sale at a profit	Up	No change	Up
Customer pays what they owe	No change	Up	No change
Pay a supplier from the bank	No change	Down	Up
Buy inventory on credit	No change	No change	Down
Buy non-current asset for cash	No change	Down	Down
Depreciation charge	Down	No change	No change
Drawings in cash	No change	Down	Down
Take out a long-term loan	No change	Up	Up
Pay an expense in cash	Down	Down	Down

A transaction affects profitability if it changes revenue or expenses. It affects liquidity if it changes current assets or current liabilities.

Quick self-test

1. Revenue is 300,000 and gross profit is 90,000. Find the gross profit margin.
2. Gross profit is 90,000 and cost of sales is 210,000. Find the markup.
3. Cost of sales is 96,000 with opening inventory 10,000 and closing inventory 14,000. Find the rate of inventory turnover.
4. Current assets are 45,000 and current liabilities are 30,000. Find the current ratio.
5. Inventory in question 4 is 15,000. Find the liquid capital ratio.
6. Trade receivables are 24,000 and credit sales 240,000. Find the receivable days to one decimal place.
7. Trade payables are 15,000 and credit purchases 120,000. Find the payable days to one decimal place.
8. Profit from operations is 18,000 and capital employed 120,000. Find ROCE.
9. A business buys inventory on credit. State the effect on profit and on the current ratio, assuming the ratio started above 1.
10. A business charges depreciation. State the effect on profit and on cash.
11. Name two reasons a profitable business may have a bank overdraft.

Answers

1. 90,000 / 300,000 x 100 = 30.0%.
2. 90,000 / 210,000 x 100 = 42.9%.
3. Average inventory (10,000 + 14,000) / 2 = 12,000. 96,000 / 12,000 = 8 times.
4. 45,000 : 30,000 = 1.5 : 1.
5. (45,000 - 15,000) : 30,000 = 1.0 : 1.
6. 24,000 / 240,000 x 365 = 36.5 days.
7. 15,000 / 120,000 x 365 = 45.6 days.
8. 18,000 / 120,000 x 100 = 15.0%.
9. No effect on profit. The current ratio falls, because current assets and current liabilities rise by the same amount.
10. Profit falls. Cash does not change.
11. Any two: growth in receivables, growth in inventory, buying non-current assets, large drawings, loan repayments.

Where marks are usually lost

• Giving a number with no formula, so the method cannot be seen.
• Leaving out units: %, times, days or x : 1.
• Using total sales instead of credit sales for receivable days, or the wrong purchases figure for payable days.
• Putting markup over revenue, or margin over cost of sales.
• Describing a change (“it went up”) without a reason, a comparison or a judgement.
• Saying a higher current ratio is always better, or that more profit means more cash.
• Forgetting that drawings and loan repayments change cash but not profit.
• Counting an overdraft as a current asset instead of a current liability when finding capital employed or the current ratio.
• Mixing average inventory and closing inventory between years without saying so.

Model appraisal sentences

Use the pattern: result, comparison, reason, judgement.

• “Gross profit margin fell from 35.0% to 32.0%, so each sale earned less. Cost of sales rose faster than revenue, which suggests dearer supplies or discounting. This weakens profitability.”
• “The liquid capital ratio is 0.8 : 1, below 1. Without selling inventory the business could not meet all its current liabilities, so the owner should collect receivables sooner.”
• “Profit rose by 10% but the bank balance fell. Much of the profit is tied up in higher receivables and inventory, so profit and cash have moved apart.”

Name the stakeholder where the question does. A lender looks first at liquidity and ROCE. An owner looks at profit in relation to revenue and ROCE. A supplier looks at payable days and the current ratio.

Frequently asked questions

How should I write an appraisal sentence? Use the pattern result, comparison, reason, judgement: state the figure and its direction, compare it with another year, give a likely reason and say what it means for the business.

Is a higher current ratio always better? No. A very high current ratio can mean idle cash or too much inventory, so a higher ratio is not always better for the business.

Which ratios does a lender look at first? A lender looks first at liquidity and ROCE. Name the stakeholder where the question does, and pick the ratios that matter most to that reader.

Do drawings and loan repayments affect profit? No. Drawings and loan repayments reduce cash but do not change profit, which is one reason a profitable business can have a falling bank balance.

What is profit from operations? Profit from operations is gross profit minus expenses, before loan interest. If there is no loan interest, it equals profit for the year.

Official syllabus

Source: OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards, published by OxfordAQA, section 3.5.