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IB Business Management – Finance, 2026 – Study
Material and Practice Questions
Capital - correct answer ✔✔ wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing: Assets - correct answer ✔✔ property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies Liabilities - correct answer ✔✔ a company's financial debt or obligations that arise during the course of its business operations; settled over time through the transfer of economic benefits including money, goods or services Capital Expenditure - correct answer ✔✔ money spent to acquire items in a business that will last for more than a year and may be used over and over again Capital Expenditure - correct answer ✔✔ money spent to acquire fixed assets in a business fixed assets - correct answer ✔✔ type of capital expenditure that includes machinery, land, buildings, vehicles, and equipment; can be used as collateral because of their high fixed costs Revenue Expenditure - correct answer ✔✔ money spent on the day-to-day running of a business; include payments or expenses such as rent, wages, raw materials, insurance, and fuel
Revenue Expenditure - correct answer ✔✔ money used in the day-to-day running of a business Collateral - correct answer ✔✔ financial security pledged for repayment of a particular source of finance such as bank loans internal sources of finance - correct answer ✔✔ this can include: personal funds, retained profit, and the sale of assets Personal funds - correct answer ✔✔ an internal source of finance that comes from personal savings; it is cheap and easily available because there is no interest to be paid; it can prove difficult because of the risk of possibly investing life savings or needing more than what this source can offer; a source of finance for sole traders that comes mostly from their personal savings Retained profit (earnings) - correct answer ✔✔ an internal source of finance; profit that remains after a business has paid corporation tax to the government and dividends to shareholders; also known as ploughed-back profit to be reinvested into the business Sale of assets - correct answer ✔✔ an internal source of finance that happens when a business sells off its unwanted or unused assets to raise funds external sources of finance - correct answer ✔✔ This can include: share capital, loan capital, overdrafts, trade credit, grants, subsidies, debt factoring, leasing, venture capital, and business angles Share (equity) capital - correct answer ✔✔ external source of finance; money raised from the sale of shares of a limited company
Trade credit - correct answer ✔✔ external source of finance; an agreement between businesses that allows the buyer of goods or services to pay the seller at a later date Grants - correct answer ✔✔ external source of finance; funds usually provided by a government, foundation, trust, or other agency to businesses that do not need to be repaid Grant makers - correct answer ✔✔ external source of finance; providers of grants who are very selective on who receives the grants Subsidy - correct answer ✔✔ external source of finance; financial assistance granted by a government, a non-governmental organization (NGO), or an individual to support business enterprises that are in the public interest Debt factoring - correct answer ✔✔ external source of finance; a financial arrangement where the debt factor takes on the responsibility for collecting the debt owed to the business and provides the business with a a percentage of the owed debt in cash Debt factoring - correct answer ✔✔ gives businesses immediate cash to use to fund other activities; the risk/responsibility of debt collecting is handed to the second party that takes on that invoice; Leasing - correct answer ✔✔ external source of finance; a source of finance that allows a firm to use an asset without having to purchase it by cash finance lease - correct answer ✔✔ a financial agreement where at the end of the leasing period the business is given the option to purchase the asset Venture capital - correct answer ✔✔ external source of finance; financial capital provided by investors to high-risk, high-potential start-up firms or
small businesses; include investment banks; they own a stake in the business and expect dividends Business angel - correct answer ✔✔ external source of finance; highly affluent individuals who provide financial capital to small start-ups or entrepreneurs in return for ownership equity in their business Business angel - correct answer ✔✔ also known as angel investing Business angel - correct answer ✔✔ external source of finance; they tend to give easier financial terms than other sources; also tend to invest in the person rather than the business and how viable it is Short-term finance - correct answer ✔✔ money needed for the day-to-day running of a business and therefore provides its needed working capital; lasts for one year or less Examples: overdraft, trade credit, debt factoring Medium-term finance - correct answer ✔✔ money mostly used to purchase assets such as equipment or vehicles that have useful lifespans for a specific period of time; duration of between one year and five years Examples: leasing, medium-term bank loans, grants Long-term finance - correct answer ✔✔ funding obtained for the purpose of purchasing long-term fixed assets or other expansion requirements of a business; time period of between more than five years to around 30 years Examples: long-term bank loans and share capital
Cost - correct answer ✔✔ refers to the total expenditure incurred by a business in order to run its operations Opportunity cost - correct answer ✔✔ the next best alternative that is forgone after choosing one source over the other Fixed cost - correct answer ✔✔ costs that do not change with the amount of goods or services produced; these have to be paid regardless of business activity Variable cost - correct answer ✔✔ costs that change with the number of goods or services produced; these expenses change in proportion to business activity Semi-variable cost - correct answer ✔✔ costs comprising both fixed and variable components; also known as semi-fixed costs or mixed costs Direct cost - correct answer ✔✔ costs that can be identified with the production of specific goods or services Indirect cost (overhead) - correct answer ✔✔ costs that are not clearly identified with the production of specific goods or services Revenue - correct answer ✔✔ a measure of the money generated from the sale of goods and services Total revenue - correct answer ✔✔ income gained from the sale of goods and services; also known as sales revenue or sales turnover
Revenue streams - correct answer ✔✔ examples of these include rental income, sale of fixed assets, dividends, interests on deposits, donations, grants, and subsidies Contribution per unit - correct answer ✔✔ refers to the difference between the selling price per unit and variable cost per unit Total contribution - correct answer ✔✔ calculated when more than one unit is sol; it is found by subtracting the total variable costs from the total sales revenue Profit - correct answer ✔✔ obtained by subtracting total fixed costs from the total contribution Break-even quantity/point - correct answer ✔✔ the total costs equal the total revenue Profit - correct answer ✔✔ any sales that exceed the break-even quantity Losses - correct answer ✔✔ sales that are less than the break-even quantity Margin of safety - correct answer ✔✔ also known as the safety margin; a measure of the difference between the break-even level of output and the actual (current) level of output; the range of output over which profit is made Target profit output - correct answer ✔✔ the level of output that is needed to earn a specified amount of profit Break-even chart - correct answer ✔✔ graphical method that measures the value of a firm's costs and revenues against a given level of output and helps in identifying the break-even point
Competitors - correct answer ✔✔ final accounts matter to them because it will allow them to assess how they are performing financially Financiers - correct answer ✔✔ (banks, lenders); final accounts matter to them because it will check on the creditworthiness of the business to establish how much money they can lend it The local community - correct answer ✔✔ final accounts matter to them because they will want to know the business's profitability and expansion potential Final accounts - correct answer ✔✔ the main ________ __________ are: income statement balance sheet Profit and loss statement - correct answer ✔✔ shows the record of income and expenditure flows of a business over a given period of time Cost of Goods Sold (COGS) - correct answer ✔✔ the direct cost of producing or purchasing the goods that were sold during that period Gross profit - correct answer ✔✔ found by deducting cost of goods sold from sales revenue Net profit before interest and tax - correct answer ✔✔ the difference between gross profit and expenses Net profit before tax - correct answer ✔✔ found by subtracting interest from net profit before interest and tax
Net profit after interest and tax - correct answer ✔✔ equal to net profit before tax less tax dividends - correct answer ✔✔ a sum of money paid to shareholders decided by the board of directors of a company Income statement - correct answer ✔✔ AKA profit and loss statement/account; shows the records of income and expenditure flows of a business over a given time period; establishes whether a business has made a profit or loss and how it was distributed at the end of the period Trading account - correct answer ✔✔ shows the difference between the sales revenue and the cost to the business of those sales; establishes the gross profit Appropriation account - correct answer ✔✔ final part of the profit/loss account that shows how the company's net profit after interest and tax is distributed; the distribution is in two forms: dividends to shareholders or retained profit Retained profit - correct answer ✔✔ the amount of earnings left after dividends and other deductions have been made Balance sheet - correct answer ✔✔ statement of financial position that outlines assets, liabilities, and equity of a firm at a specific point in time; the requirement is that the assets must equal the liabilities plus how the assets are financed (equity) Fixed assets - correct answer ✔✔ long-term assets that last in a business for more than 12 months; can include: buildings, equipment, vehicles, and machinery
Profitability ratio - correct answer ✔✔ ratios that asses the performance of a firm in terms of profit-generating ability two types: gross profit margin and net profit margin Gross profit margin - correct answer ✔✔ calculated by dividing the gross profit by the sales revenue, expressed as a percentage Net profit margin - correct answer ✔✔ calculated by dividing the net profit before interest and tax by the sales revenue, expressed as a percentage Efficiency ratio - correct answer ✔✔ assess how well a firm internally utilizes its assets and liabilities; also help analyze the performance of a firm Return on capital employed - correct answer ✔✔ assesses the returns a firm is making from its capital employed Liquidity ratio - correct answer ✔✔ measure the ability of a firm to pay off its short-term debt obligations; measures how quickly an asset can be converted into cash; two ratios of this are: current ratio, acid test ratio Current ratio - correct answer ✔✔ makes a comparison of a firm's current assets to its current liabilities Acid test (quick) ratio - correct answer ✔✔ more stringent indicator of how well a firm is able to meet its short-term obligations; removes stock as part of the current assets; otherwise it is very similar to current ratio
Cash flow - correct answer ✔✔ the money that flows in and out of a business over a given period of time; a major indicator of a firms' ability to meet its financial obligations; Cash inflow - correct answer ✔✔ the monies received by a business Cash outflow - correct answer ✔✔ the monies paid out by a business over a period of time Solvency - correct answer ✔✔ the ability of a company to meet its long-term financial goals Insolvency - correct answer ✔✔ a profitable business with little or no cash and an inability to pay off its debts illiquid - correct answer ✔✔ a business is described as this if it is not able to pay its short-term debts liquidated - correct answer ✔✔ when all a firm's assets are sold off to pay any funds owing—leading to its closure Working capital management - correct answer ✔✔ an assessment of the way the current assets and current liabilities are being administered Net current assets - correct answer ✔✔ AKA working capital; calculated through the difference between current assets and current liabilities Working capital cycle - correct answer ✔✔ the period of time between payment for goods supplied to a business and the business receiving cash from their sale
