Finance is vital to a firm's operations

This section of the IB Business Management syllabus looks at the finances of business organizations.

The finance and accounts section of the course examines aspects of financial control (such as cash flow and budgeting) and financial management accounts (such as the balance sheet, income statement and ratio analysis).

All business decisions have two impacts:

1. the impact on human resources (see Unit 2 - HRM), and

2. the impact on the organization's finances.

• Role of finance for businesses: capital expenditure and revenue expenditure (AO2)
• The following internal sources of finance: personal funds (for sole traders), retained profit, and the sale of assets (AO2)
• The following external sources of finance: share capital, loan capital, overdrafts, trade credit, grants, subsidies, debt factoring, leasing, venture capital, and business angels (AO2)
• Short, medium and long-term finance (AO1)
• The appropriateness, advantages and disadvantages of sources of finance for a given situation (AO3)

• The following types of cost, using examples: fixed, variable, semi-variable, direct, and indirect / overhead (AO2)
• Total revenue and revenue streams, using examples (AO2)

• Total contribution versus contribution per unit (AO2)
• A break-even chart and the following aspects of break-even analysis: break-even quantity / point, profit or loss,  margin of safety, target profit output, target profit, and target price (AO2 & AO4)
• The effects of changes in price or cost on the break-even quantity, profit and margin of safety, using graphical and quantitative methods (AO2 & AO4)
• The benefits and limitations of breakeven analysis (AO3)

• The purpose of accounts to different stakeholders (AO3)
• The principles and ethics of accounting practice (AO3)
• Final accounts: the profit and loss account (AO2 & AO4)
• Final accounts: the balance sheet (AO2 & AO4)
• Different types of intangible assets (AO1)
• Depreciation using the following methds: straight line method and reducing (declining) balance method (AO2 & AO4) (HL Only)
• The strengths and weaknesses of each method of depreciation (AO2) (HL Only)

• The following profitability and efficiency ratios: gross profit margin (GPM), net profit margin (NPM), and return on capital employed (ROCE) (AO2 & AO4)
• Possible strategies to improve these profitability and efficiency ratios (AO3)
• The following liquidity ratios: current ratio and acid-test (quick) ratio (AO2 & AO4)
• Possible strategies to improve these liquidity ratios (AO3)

• The following further efficiency ratios: inventory/stock turnover, debtor days, creditor days, and gearing ratio (AO2 & AO4) (HL Only)
• Possible strategies to improve these ratios (AO3) (HL Only)

• The difference between profit and cash flow (AO2)
• The working capital cycle (AO2)
• Cash flow forecasts (AO2 & AO4)
• The relationship between investment, profit and cash flow (AO2)
• The following strategies for dealing with cash flow problems: reducing cash outflow, improving cash inflows, and looking for additional finance (AO3)

• Investment opportunities using payback period (PBP) and average rate of return (ARR) (AO3 & AO4)
• Investment opportunities using net present value (NPV) (AO3 & AO4) (HL Only)

• The importance of budgets for organizations (AO2)
• The difference between cost and profit centres (AO1)
• The roles of cost and profit centres (AO2)
• Variances (AO2 & AO4)
• The role of budgets and variances in strategic planning (AO2)