Business finance and commercial performance
Compare short- and long-term finance, calculate core commercial measures and judge ways to improve sales, profit, mark-up or working capital.
Section Paper 2 · Written
Exam scope and assessment notes
This original lesson maps Cambridge IGCSE Commerce 0715 for exams in 2028 and 2029. Examples, businesses, figures and practice questions are original StudyForA material, not Cambridge questions, mark schemes or endorsements. Practice supports the knowledge, application, data interpretation, analysis and evaluation skills in the syllabus; it is self-checked and does not produce an official Cambridge grade. Full timed papers, examination-centre entry advice and review by a qualified Commerce teacher remain outside this pathway.
Before you begin
- No prior Commerce study is assumed. Work from the facts in each scenario and show calculations before making a commercial judgement.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which formula calculates working capital?
What you will learn
- Distinguish entrepreneurship and compare the listed short-term and long-term finance sources with their benefits and limitations.
- Use sales, revenue, profit, working capital, assets, liabilities, interest, capital and discount terminology accurately.
- Calculate revenue, gross profit, gross-profit margin, net profit, working capital and mark-up percentage.
- Evaluate methods of improving sales turnover, profit, mark-up or working capital in a stated situation.
Match finance to purpose and duration
Entrepreneurs organise resources and accept risk in pursuit of an opportunity. Short-term finance may include trade credit, debt factoring, hire purchase, leasing, sale-and-leaseback, overdraft, asset sales, owner savings or retained profit. Long-term finance may include ordinary or preference shares, loans, debentures, venture capital or crowdfunding.
No source is best in every case. Compare cost, repayment timing, control, security, eligibility and the business's cash flow. Debt creates repayment obligations; issuing shares can share ownership or returns; retained profit preserves external control but may be insufficient.
Use the measures carefully
Revenue = selling price per unit × units sold. Gross profit = revenue − cost of sales. Gross-profit margin = gross profit ÷ revenue × 100. Net profit = gross profit − expenses. Working capital = current assets − current liabilities. Mark-up percentage = (average selling price − unit cost) ÷ unit cost × 100.
A cash discount reduces an amount for prompt payment under stated terms; a trade discount is a reduction from a listed or usual price, often in a business-to-business sale. Profit is not cash: timing of receipts and payments affects whether the business can meet short-term obligations.
Improve a measure without hiding the trade-off
A business can try to increase sales through promotion, distribution or new products; raise mark-up or selling prices; reduce expenses; or improve working capital through stock, receivables or payment management. Each action can change demand, quality, supplier relations, cash or cost elsewhere.
Use evidence before recommending a change. For example, a price rise can increase margin per unit but reduce quantity sold. Reducing stock may release cash but cause shortages. Improving a financial measure is not automatically an improvement in long-term performance.
Sources for this lesson
Pause and explain
A business has current assets of $9,500 and current liabilities of $7,200. What is its working capital?
Worked example
A seller has revenue of $8,000, cost of sales $4,800, expenses $2,100, current assets $3,000 and current liabilities $1,700. Calculate gross profit, gross-profit margin, net profit and working capital.
Show the worked solution
- Gross profit = 8,000 − 4,800 = $3,200.
- Gross-profit margin = 3,200 ÷ 8,000 × 100 = 40%.
- Net profit = 3,200 − 2,100 = $1,100; working capital = 3,000 − 1,700 = $1,300.
Answer Gross profit is $3,200; gross-profit margin is 40%; net profit is $1,100; working capital is $1,300. These figures describe different aspects of performance and liquidity.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A product sells for $30. The unit cost is $18 and 400 units are sold. Calculate revenue, gross profit and gross-profit margin.
Give me a hint
Calculate revenue first, then cost of sales and margin.
Compare my reasoning
- Revenue = $30 × 400 = $12,000.
- Cost of sales = $18 × 400 = $7,200; gross profit = $12,000 − $7,200 = $4,800.
- Gross-profit margin = 4,800 ÷ 12,000 × 100 = 40%.
Revenue is $12,000, gross profit is $4,800 and gross-profit margin is 40%. Expenses have not been subtracted, so this is not net profit.
Look for these in your work
- Revenue correct
- Cost of sales and gross profit correct
- Margin formula and interpretation correct
A firm has gross profit $5,400 and expenses $4,650. It wants to raise prices by 5%. Explain its current net profit and two effects it should investigate before changing prices.
Give me a hint
Calculate net profit, then balance higher margin against the possible change in quantity and customer response.
Compare my reasoning
- Current net profit = 5,400 − 4,650 = $750.
- A higher price may raise contribution per unit but could reduce quantity sold.
- Investigate competitor prices, customer sensitivity, product value and the resulting total revenue and profit.
Current net profit is $750. A 5% price increase could improve margin on units still sold but may reduce demand or prompt customers to switch. The firm should test price sensitivity and competitor response and compare total profit, not just price per unit.
Look for these in your work
- Net profit correct
- Demand effect included
- Uses total-profit evidence
A retailer has slow-moving stock and late customer payments. Explain how it might improve working capital and one risk of each action.
Give me a hint
Use stock management and receivables collection while considering shortages or customer relationships.
Compare my reasoning
- Reduce excess or obsolete inventory through better forecasting or targeted clearance; too little stock can create lost sales.
- Follow up overdue accounts and set suitable credit terms; aggressive collection can harm customer relationships.
- Monitor current assets, current liabilities and cash timing after the changes.
The retailer could reduce excess inventory to release cash and improve collection of overdue receivables. Stock cuts can cause shortages, while stricter credit can lose customers. It should track working capital and service levels together.
Look for these in your work
- Two relevant actions
- Trade-offs identified
- Measures monitored
Common mistakes
- Dividing gross profit by cost of sales for margin
- Subtracting current liabilities from total assets instead of current assets
- Calling revenue profit
- Raising prices without considering the effect on demand
What can you explain now?
A product sells for $25 and its unit cost is $20. What is the mark-up percentage on cost?
Compare with the explanation
25%
Mark-up = (25 − 20) ÷ 20 × 100 = 25%.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Write the gross-profit-margin and working-capital formulas, then name one risk of raising a selling price.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.