IB business exam review

Internal sources of finance

Money raised from within the business, such as retained profit, sale of assets, and owner’s capital

External sources of finance

Money raised from outside the business, such as bank loans, overdrafts, shares, and venture capital

Capital expenditures

Spending on long-term assets used for more than one yearsuch as machinery, buildings, and vehicles

Revenue expenditures

Spending on day-to-day operating costs, such as wages, rent, utilities, and raw materials

Retained profit

Profit kept in the business after tax and dividends to finance growth

Advantage of retained profit

No interest payments and no loss of ownership or control

Disadvantage of retained profit

Limited amount available and may slow business growth

Stakeholders

Groups with an interest in the business’s performance, such as owners, employees, banks, and the government

Why stakeholders use the income statement

To assess profitability, performance, and financial stability

Income statement

A financial statement showing revenue, costs, and profit over a period of time

Three main sections of an income statement

Revenue, Cost of Goods Sold, and Gross/Net Profit

Average Fixed Cost (AFC) formula

AFC equals fixed costs divided by quantity produced

Total Cost (TC) formula TC equals

fixed costs plus variable costs

Average Variable Cost (AVC) formula

AVC equals variable costs divided by quantity produced

Cost of Goods Sold (COGS) formula

COGS equals opening inventory plus purchases minus closing inventory