Finance and Accounting (A Level)

Revise Finance and Accounting (A Level) for Business 9609 (AS Level) — revision notes and instant AI marking.

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Cambridge International AS & A Level Business (9609)

Finance and Accounting (A Level)

The big idea: Published accounts and ratios tell stakeholders how liquid, profitable, efficient and safe a business is; investment appraisal decides where its money should go next.

Summary — What This Chapter Covers

Income statement and statement of financial position; inventory valuation and depreciation.
Ratio analysis using the syllabus formulae (liquidity, profitability, efficiency, gearing, investment).
Investment appraisal: payback, ARR = (average profit ÷ average investment) × 100, and NPV.
Finance and accounting strategy and the limitations of ratio analysis.

1. Financial Statements

Statements

What the accounts show

The income statement shows revenue, cost of sales, gross profit, profit from operations and profit for the year; the statement of financial position shows assets, liabilities and equity at one date.

2. Analysis of Published Accounts

Ratios

The syllabus formulae

Ratio	Formula
Current ratio	current assets : current liabilities
Acid test ratio	(current assets − inventory) : current liabilities
Gross profit margin	gross profit ÷ revenue × 100
Operating profit margin	profit from operations ÷ revenue × 100
ROCE	profit from operations ÷ capital employed × 100
Trade receivables turnover (days)	trade receivables ÷ credit sales × 365
Trade payables turnover (days)	trade payables ÷ credit purchases × 365
Rate of inventory turnover	cost of sales ÷ average inventory
Gearing	non-current liabilities ÷ capital employed × 100
P/E ratio	market price per share ÷ earnings per share
Dividend yield	dividend per share ÷ market price per share × 100
Dividend cover	profit for the year ÷ annual dividend

Capital employed = issued shares + reserves + non-current liabilities.

Worked Example

Current assets $60,000 (inventory $20,000), current liabilities $40,000. Find the current and acid test ratios.

3. Investment Appraisal

Appraisal

Payback, ARR and NPV

Payback counts how long cash flows take to repay the investment; ARR measures average profit against average investment; NPV discounts future cash flows to today's value.

Worked Example

Memorise

Liquidity

ROCE

Gearing

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Using ratios in decisions

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Finance and Accounting (A Level)