A-LevelBusiness StudiesFinance and accounting9609/33 · May/June 2025 · Q316 Marks

Using the data in Table 1.2, calculate the operating profit margin for WCP in 2025.

(a)Using the data in Table 1.2, calculate the operating profit margin for WCP in 2025.[2]
(b)Using the data in Table 1.2, calculate the gearing ratio as at 30 April 2025.[2]
(c)Evaluate whether WCP should finance the proposed GC takeover with long-term bank loans.[12]

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Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

[1] (a) OPM = operating profit / Revenue × 100
[2] (a) 3/21 × 100 = 14.29 % OR 14.3% or 14%
[1] (a) 2024 figures 2 / 17.5 × 100 = 11.4 % OR 11.4% OR 11%
[2] (a) Allow 14.28%
[1] (a) 14.28
[1] (b) Gearing = Long term liabilities / capital employed × 100
[2] (b) 2025 10/16 × 100 = 62.5 % OR 63 %
[1] (b) 2024 8/15 × 100 = 53.3 % OR 53%
[1] (b) 62.5
[K] (c) Definition of takeover, external growth, when one firm buys a controlling share in another or integration when one firm buys another.
[K] (c) May eliminate a competitor
[K] (c) May spread risk
[K] (c) External growth is faster than internal growth
[K] (c) Crowd funding
[K] (c) Bank loans
[K] (c) Venture capital
[K] (c) More finance from shareholders in a private limited company
[K] (c) Becoming a plc, equity finance
[K] (c) Control
[K] (c) Cost
[K] (c) Gearing - risk
[APP] (c) Takeover will cost $8m much higher than profit for the year $1.5m.
[APP] (c) Profit for the year has remained stable 2024/2025.
[APP] (c) 50% of profit donated to foundation to improve sanitation in developing countries.
[APP] (c) Gearing is over 50% (quite high) and has increased by nearly 10%.
[APP] (c) Crowdfunding part of the amount from WCP's loyal paper products customers may be an opportunity.
[APP] (c) Difference of opinion over source of finance between Aldin and Finance Director.
[AN] (c) Takeover is costly and the relatively high gearing of WCP increases risk of further borrowing causing cash flow problems for WCP if GC is not immediately profitable.
[AN] (c) Finance from a venture capitalist may mean Aldin and other shareholders giving up a % of WCP leading to a possible loss of control.
[AN] (c) Given the current gearing of 62.5% further borrowing of $8m would increase gearing to 18m/24m 75% which is very high and would decrease profits due to repayments.
[AN] (c) Converting to a plc may raise more finance that does not need to be repaid so less impact on profit but also risks loss of control if more than 50% of WCP is sold.
[EVAL] (c) A judgement about whether a bank loan is the best source of finance.
[EVAL] (c) Cost issues, repayment versus loss of control to venture capitalists
[EVAL] (c) If current shareholders are all willing to go through sale of company/conversion to plc
[EVAL] (c) How quickly the finance is needed
[EVAL] (c) Social objectives of WCP, to what extent will donations be affected
[EVAL] (c) Depends on availability of finance linked to relatively high gearing and interest rate.
[EVAL] (c) Crowdfunding unlikely to raise a significant amount
[EVAL] (c) Opportunity cost of this project. What other future plans may WCP have?
[EVAL] (c) Weighing up of the factors and their relative influence on WCP's decision on the most suitable source of finance.
[EVAL] (c) Converting to a plc may raise more finance that does not need to be repaid so less impact on profit but risks loss of control if more than 50% of WCP is sold.