2. © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Example question Topic 1.2 Showing enterprise

3. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 1: Read just the question Sparkle Oven Cleaning Company Ltd is a business offering an oven cleaning service for both domestic houses and small catering businesses in the Northampton area. Eddie Lowe, one of the owners of this family run business, aims to provide a professional cleaning service. Eddie says that the focus of the business is on competitive prices, high standards and aftercare: “because we take pride in making sure every customer is satisfied - guaranteed!” (http://www.sparkleovencleaning.co.uk/index.html) Question Identify three conclusions about Sparkle Oven Cleaning Company Ltd that can be drawn from the chart.

4. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Think: Look carefully at the chart and do some calculations – cash inflow, cash outflow, net cash flow over the period. Question Identify three conclusions about Sparkle Oven Cleaning Company Ltd that can be drawn from the chart. Step 2: Try to answer the question Try: Note your results by the side of the chart for reference.

5. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 3: Look at the answer options Question Identify three conclusions about Sparkle Oven Cleaning Company Ltd that can be drawn from the chart. The answer options a)Eddie might have to hire more staff around the Christmas period. b)Sparkle Ltd will make a profit at the end of the year. c)A bank would be very likely to grant Eddie an overdraft facility. d)Eddie should be able to manage his cash-flow effectively if these figures turn out to be correct. e)Eddie is not profitable in August and September. f)The business is likely to do well in the following year.

6. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 3: Look at the answer options The thinking process With this sort of question, you have to deal with each answer option individually and decide whether the statement is true or false based on the evidence in the chart. So… a)Eddie might have to hire more staff around the Christmas period. What is the net cash flow in December? What does this figure tell you about the business at this time of the year? Remember to keep in mind what sort of business this is – why might Eddie be particularly busy in December? Does the idea of Eddie having to hire more staff sound likely?

7. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 3: Look at the answer options b) Sparkle Ltd will make a profit at the end of the year. Is cash flow and profit the same thing? Do you know whether Eddie will make a profit at the end of the year? In any event, would you also need the information for the first half of the year? Does this sound like a reasonable answer? c) A bank would be very likely to grant Eddie an overdraft facility. What is an overdraft? What is the overall position of Eddie’s cash flow – healthy or not? (Refer back to your scribbled calculations here). Given the chart, would you be prepared to grant Eddie an overdraft (bearing in mind what an overdraft is and that any lender wants to make sure they are likely to get paid back). Is this a reasonable option?

8. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 3: Look at the answer options d) Eddie should be able to manage his cash-flow effectively if these figures turn out to be correct. Again – refer to your cash flow calculations. Look at the times when he has negative and positive cash flow. What is the overall position? Does this sound like a reasonable conclusion? e)Eddie is not profitable in August and September. Is profit and cash flow the same thing? Because he has negative cash flow in these two months does this mean he does not make a profit? Can you tell whether he has made a profit in these two months from the information in the chart? Is this a reasonable conclusion?

9. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 3: Look at the answer options f)The business is likely to do well in the following year. Given the information in the chart, can any (reliable) forecast be made of how Eddie might perform next year? Cash flow might be ‘good’ but we don’t know anything about Eddie’s other financial commitments – his set-up costs for example might have been very high. Is this a reasonable conclusion?

10. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Step 4: Eliminate the distractors Given your thinking about the options, what would you definitely reject? Remember that cash flow is not the same as profit, so options b) and e) can be discounted. a) Eddie might have to hire more staff around the Christmas period. b) Sparkle Ltd will make a profit at the end of the year. c) A bank would be very likely to grant Eddie an overdraft facility. d) Eddie should be able to manage his cash-flow effectively if these figures turn out to be correct. e) Eddie is not profitable in August and September. f) The business is likely to do well in the following year. This leaves a), c), d) and f) as possible answers.

11. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation The high positive cash flow in December suggests cash inflow that month is much higher than cash outflow – a sign Eddie has been busy. It is likely, therefore, he might need some extra help in December as people get their ovens cleaned for Christmas – a) is a valid conclusion, therefore… Step 4: Eliminate the distractors

12. Source Step 4: Eliminate the distractors Given the fact that Eddie has only two months of negative cash flow (and these are only -£2 000 and -£1 000 respectively) and the rest are positive is a healthy sign Eddie’s overall cash flow for the six month period is positive at £12 000 – would a bank be pleased at this? Assuming this pattern, a bank is likely to grant Eddie an overdraft because of the healthy positive cash flows in November and December and the overall picture he has presented. c) is a reasonable conclusion to draw given that an overdraft is a short-term flexible source of finance for just this type of purpose – to cover slower months when cash outflows are higher than cash inflows. Edexcel GCSE Business Unit 1 Exam Preparation © Pearson Education 2010

13. Source Step 4: Eliminate the distractors We do not have enough information to be able to say whether Eddie’s business will do well next year, so f) is not a reasonable answer. Edexcel GCSE Business Unit 1 Exam Preparation © Pearson Education 2010

14. Source © Pearson Education 2010 Edexcel GCSE Business Unit 1 Exam Preparation Question Identify three conclusions about Sparkle Oven Cleaning Company Ltd that can be drawn from the chart. a) Eddie might have to hire more staff around the Christmas period b) Sparkle Ltd will make a profit at the end of the year c) A bank would be very likely to grant Eddie an overdraft facility d) Eddie should be able to manage his cash-flow effectively if these figures turn out to be correct e) Eddie is not profitable in August and September f) The business is likely to do well in the following year The correct options are a), c) and d). Step 5: Arriving at the correct answer