IBH is a family-owned private limited company. It makes a range of shoes for children, using batch production. It is a competitive market. Like many businesses, IBH needs finance for a number of reasons. The Finance Director has been looking at some financial data. An extract is shown in Table 1. Some of the directors would like to expand into the women's shoe market and want to know whether IBH's performance is improving. Table 1: Extract from financial data for IBH ($000) | | 2016 | 2017 | |---|---|---| | Revenue | 400 | 480 | | Gross profit | 240 | 320 | | Profit | 120 | 120 | | Non-current liabilities | 100 | 200 |

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [2] Clear understanding: debts / loans repayable in more than 12 months [2]
2. Or Money owed for more than a year [2]
3. [1] Some understanding: e.g. debts or money owed [1]
4. Or repayable in more than 12 months [1]
5. [1] start-up / start a business venture
6. [1] cash flow problems / survive (BOD)
7. [1] pay creditors
8. [1] offer credit to customers
9. [1] fund expansion
10. [1] replace machinery / investment
11. [1] working capital/ day-to-day
12. [1] pay for advertising (promotion)
13. [1] can control who buys shares [k] so can keep control in this competitive market [app]
14. [1] easier to raise finance / able to sell shares [k] as they want to expand [app]
15. [1] seen as more creditworthy to suppliers [k] so could be more willing to supply leather [app]
16. [1] limited liability [k] this keeps personal assets of family safe [app]
17. [1] incorporation / separate legal identity [k]
18. [1] no need to publish accounts [k]
19. [1] continuity [k]
20. [1] economies of scale [k] to reduce average costs [an] to increase the profit above $120 000 [app]
21. [1] allows variety of products [k] so easier to meet demand for different styles [an] of shoes [app]
22. [1] flexibility / easy to switch production [k]
23. [1] limited quantity [k] so if children's tastes change [app] so not left with unwanted stock [an]
24. [1] variety of tasks for workers [k] which increase worker motivation and output [an]
25. [1] production may not be affected if machinery breaks down [k]
26. [1] spread risk [k] as they are not reliant on one product for all sales [an]
27. [1] revenue increased [k] by 80 000 [app]
28. [1] non-current liabilities have increased [k] by 100 000 [app]
29. [1] gross profit increased [k] by 80 000 [app]
30. [1] profit has remained the same [k]
31. [1] gross profit margin increased [k] from 60% [app + an] to 67% [an]
32. [1] gross profit margin increased [k] by 6–7% [app + an + an]
33. [1] (net) profit margin has fallen [k] from 30% [app + an] 25% [an]
34. [1] (net) profit margin fallen [k] by 5% [app + an + an]
35. [1] Award 1 mark for identification of relevant point
36. [1] Award 1 mark for relevant reference made to this business
37. [2] Award up to 2 marks for relevant development of point(s)
38. [2] Award up to 2 marks for a justified decision made as to whether IBH's performance has improved or not