Unit 3 - Finance

Unit 3 - Finance and accounts

Finance is vital to an organization'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.

Finance & accounts and conceptual understandings (from the guide):

Change in the business structure can impact a business’ financial resources
Creativity in financial reporting can have diverse impacts in a business
Ethical financial and accounting practices can be a form of sustainable business behaviour

The recommended teaching hours from the IB for Unit 3 of the Business Management syllabus are as follows:

SL = 30 hours
HL = 45 hours

The IB Business Management syllabus content for Unit 3 is outlined below. There are nine topics in Unit 3 - Finance and accounts.

Unit 3.1 - Introduction to finance

Unit 3.1 - Introduction to finance

This section of the syllabus covers the following assessment objectives:

Unit 3.2 - Sources of finance

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

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)

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

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)

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

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)

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)

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)

Selected Pages

Glossary: Product
BCG matrixDeveloped by the Boston Consulting Group (BCG), this visual marketing management tool is used to analyse a firm’s...
3.3 Costs and revenues
Learning outcomesCosts and revenues are at the heart of all businesses, irrespective of their vision or goals, and irrespective...
Unit 1.5 Revision Flashcards
Unit 1.5 - External environmentAs part of your revision for Unit 1.5 of the syllabus, have a go at this activity using flashcards....
Financial literacy simulation game
Financial literacy simulation game - The NeighborMoodNothing really makes a teacher more proud than seeing his/her students...
2.1 Introduction to HRM
2.1 Introduction to human resource management (HRM)"The world is moving at a tremendous rate. Going no one knows where....
Unit 5.4 Revision Flashcards
As part of your revision for Unit 5.4 of the syllabus, have a go at this activity using flashcards. How many of these 10...