Unit 3.1 - Introduction to finance

This section of the syllabus covers the following assessment objectives:

• Role of finance for businesses: capital expenditure (AO2)

• Role of finance for businesses: revenue expenditure (AO2)

Unit 3.2 - Sources of finance

This section of the syllabus covers the following assessment objectives:

• The following internal sources of finance: (i) Personal funds (for sole traders), (ii) Retained profit, and (iii) Sale of assets (AO2)

• The following external sources of finance: (i) Share capital, (ii) Loan capital, (iii) Overdrafts, (iv) Trade credit, (v) Crowdfunding, (vi) Leasing, (vii) Microfinance providers, (viii) Business angels (AO2)

• Appropriateness of short- or long-term sources of finance for a given situation (AO3)

Unit 3.3 - Costs and revenues

This section of the syllabus covers the following assessment objectives:

• The following types of cost, using examples: (i) Fixed, (ii) Variable, (iii) Direct, and (iv) Indirect/overhead (AO2)

• Total revenue and revenue streams, using examples (AO2)

Unit 3.4 - Final accounts (some HL only)

This section of the syllabus covers the following assessment objectives:

• The purpose of accounts to different stakeholders (AO2)

• Final accounts: Profit and loss account (AO2, AO4)

• Final accounts: Balance sheet (AO2, AO4)

• Different types of intangible assets (AO2)

• Depreciation using the following methods (HL only): (i) Straight line method, and (ii) Units of production method (AO2, AO4)

• Appropriateness of each depreciation method (HL only) AO3

Unit 3.5 - Profitability and liquidity ratio analysis

This section of the syllabus covers the following assessment objectives:

• The following profitability ratios: (i) Gross profit margin, (ii) Profit margin, and (iii) Return on capital employed (ROCE) (AO2, AO4)

• Possible strategies to improve these profitability ratios (AO3)

• The following liquidity ratios: (i) Current ratio, and (ii) Acid test (quick) ratio (AO2, AO4)

• Possible strategies to improve these liquidity ratios (AO3)

Unit 3.6 - Efficiency ratio analysis (HL only)

This section of the syllabus covers the following assessment objectives:

• The following efficiency ratios (HL only): (i) Stock turnover, (ii) Debtor days, (iii) Creditor days, and (iv) Gearing ratio (AO2, AO4)

• Possible strategies to improve these efficiency ratios (HL only) (AO3)

• Insolvency versus bankruptcy (HL only) (AO2)

Unit 3.7 - Cash flow

This section of the syllabus covers the following assessment objectives:

• The difference between profit and cash flow (AO2)

• Working capital (AO2, AO4)*

• Liquidity position (AO2)*

• Cash flow forecasts (AO2, AO4)

• The relationship between investment, profit and cash flow (AO2)

• Strategies for dealing with cash flow problems (AO3)

* These two topics did not appear in the syllabus that was first released in February 2022, but were subsequently added in the revised version published in May 2022.

Unit 3.8 - Investment appraisal (some HL only)

This section of the syllabus covers the following assessment objectives:

• Investment opportunities using (i) payback period (PBP), and (ii) average rate of return (ARR) (AO3, AO4)

• Investment opportunities using net present value (NPV) (HL only) (AO3, AO4)

Unit 3.9 - Budgets (HL only)

This section of the syllabus covers the following assessment objectives:

• The difference between cost and profit centres (AO2)

• The roles of cost and profit centres (AO2)

• Constructing a budget (AO2, AO4)

• Variances (AO2, AO4)

• The importance of budgets and variances in decision-making (AO2)