3.3 Financial Information & Decision Making

3.3.1 Cash and cash flow forecasts
Explain the importance of cash • Understand why cash is important to a business • Understand the concept of a cash flow forecast • Show awareness of the importance of cash flow forecasts Construct and interpret a simple cash flow statement • Show analytical understanding of the significance of timing in cash flow forecasting

3.3.2 Profit (what it is and why it matters)
Explain the concept of profit • Show understanding of why profit matters to a private sector business • Show awareness of the distinction between retained and distributed profit

3.3.3 Purpose and main elements of profit/loss account
Understand the main elements of a profit/loss account statement • Interpret a simple profit/loss account • Use profit and loss accounts as an aid to decision making Explain the function of profit • Explain the importance of profit as a reward for enterprise and risk taking Distinguish between cash and profit • Show awareness of why cash and profit differ

3.3.4 Purpose and main elements of balance sheet
Understand the main elements of a balance sheet • Understand the difference between assets and liabilities • Interpret a balance sheet and deduce simple conclusions such as to determine how a business is financing its activities and what assets it owns

3.3.5 Simple interpretation of financial statements using ratios
Gross and net profit, current and acid test ratio, return on capital employed (ROCE)

Alternative ways that businesses can judge their success e.g. ROCE, market share

Interpret the performance of a business by using simple accounting ratios (return on capital, gross and net profit margin, current ratio)

• Using accounting ratios make evaluative comments on the success and performance of a business

• Understand the concept of liquidity

• Use a balance sheet to aid decision making

3.3.6 Working capital Identify and calculate working capital
• Understand the concept and importance of working capital

3.3.7 Financial budgets Understand the function of financial budgets
• Awareness of the concept of a financial budget

3.3.8 Users of accounts What they might gain from analysing accounts
• Show awareness of the different users of accounts

• Show knowledge of what users might look for in the accounts of a business

• Show how users such as lenders [e.g. a bank] might use accounts as the basis upon which to make decisions