ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP's financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] Banks/lenders
2. [1] Suppliers
3. [1] Government
4. [1] Competitors
5. [1] Other businesses e.g. insurance companies
6. [1] Pressure groups
7. [1] Investors/shareholders
8. [1] Customers
9. [1] Gross profit margin/ratio/percentage
10. [1] Profit margin/ratio/percentage
11. [1] Return on capital employed/ROCE
12. [1] Allow correct formula e.g. Gross profit:sales revenue
13. [1] Lower prices/cost of materials [k] which could help the business manage its cash flow [app]
14. [1] Access to a wider range of materials [k] to make its computers [app]
15. [1] Limited resources available from own country [k] especially as trying to act in an ethical way [app]
16. [1] Better quality (than available in own country) [k] which may be why the business already import 65% [app]
17. [1] Purchasing from ethical supplier [k][app]
18. Benefits: [1] Good image/good reputation/customer loyalty [k] so customers more willing to pay high prices [an] for its computers [app]
19. Benefits: [1] High/higher demand/sales [k] which can help increase revenue [an]
20. Benefits: [1] Can help recruit/motivate/retain workers [k] reducing recruitment costs [an] as the business has 3000 employees [app]
21. Benefits: [1] Better supplier relations (as pay a fair price) [k] which can help ensure the necessary supply to maintain production [an]
22. Benefits: [1] Investors more likely to invest [k]
23. Benefits: [1] Less opposition from pressure groups [k]
24. Limitations: [1] Limited/fewer sources of materials [k] which may lead to less output [an] as already imports 65% of its raw materials [app]
25. Limitations: [1] May have to pay more to suppliers [k] leading to higher variable costs/cost of goods sold [an]
26. Limitations: [1] Workers may have to be paid more [k] at the factory [app] increasing labour costs [an]
27. Limitations: [1] Higher costs [k] could lead to higher prices [an]
28. [2] Award up to 2 marks for identification of relevant points.
29. [2] Award up to 2 marks for relevant development of points.
30. [2] Award up to 2 marks for a justified decision as to whether making a profit is more important for a business than managing its cash flow.
31. Profit: [k] It is a source of finance [an] may increase opportunity for growth [an]
32. Profit: [k] Reward for risk-taking/allows dividend for owners [k] without it, owners will have less incentive to invest [an]
33. Profit: [k] Reward for enterprise [k]
34. Profit: [k] Indicator/measure of success [k]
35. Profit: [k] Important for long-term survival [k]
36. Cash flow: [k] Need cash to pay day-to-day costs/ensures liquidity/help avoid cash flow problems/pay debt [an] otherwise might have insufficient funds/working capital to continue production [an]
37. Cash flow: [k] Sales may be on credit [an] therefore money received later [an]
38. Cash flow: [k] Reduced need for overdraft [an] which would add to interest costs [an]
39. Justification might include: Profit is a reward for risk-taking [k], without it owners will have less incentive to invest [an]. Cash flow is needed to pay day-to-day costs [k] to ensure sufficient inventory to continue production. [an] Managing cash flow is likely to be more important because a business can continue in the short term without making a profit, [eval] but without sufficient cash flow a business may be unable to operate and earn revenue [eval].