Business Studies

Calibrated to Cambridge IGCSE Business Studies 0450 / 0986, Units 1 to 3 in full, together with cost classification and break-even analysis from Unit 4 and business finance and cash flow from Unit 5. Numeracy is capped at the level of the Cambridge Lower Secondary Mathematics framework. Cambridge offers no business syllabus below IGCSE, so the reasoning demand is set by Cambridge Lower Secondary Global Perspectives 1129 rather than by a business course.

A topic that does not appear below will not be examined, and every topic listed may be examined in any year whether or not it has appeared in a past paper.

A · Business activity and enterprise

• The purpose and nature of business activity; needs, wants and scarcity
• Added value, and how a business creates it
• Consumer goods and capital goods
• Economic sectors: primary, secondary and tertiary
• The private sector and the public sector
• Enterprise and the role of the entrepreneur; risk and reward
• The purpose and content of a business plan
• Why businesses grow, why some remain small, and why new businesses fail
• Methods of measuring business size
• Growth by internal expansion and by integration: horizontal, vertical backward, vertical forward, conglomerate

B · Business ownership, objectives and stakeholders

• Sole trader, partnership, private limited company, public limited company, franchise, co-operative; the main features, advantages and drawbacks of each
• Unlimited and limited liability; incorporation
• Shares, shareholders and dividends
• Business objectives: survival, profit, growth, market share, service to the community; how objectives change over time
• Objectives of private sector and public sector organisations
• SMART objectives
• Stakeholder groups, their interests and their influence; conflict between stakeholder groups
• The distinction between a stakeholder and a shareholder

C · Marketing

• The role of marketing and its relationship to the rest of the business
• Market size, market growth and market share
• Mass marketing and niche marketing
• Market segmentation: demographic, geographic, behavioural and psychographic
• Brand, branding and brand loyalty
• Market research: primary and secondary methods; questionnaires, open and closed questions, sampling; presentation and interpretation of results; limitations of research
• The marketing mix: Product, Price, Place, Promotion
• Product: the product life cycle and extension strategies; product differentiation; packaging
• Price: cost-plus, penetration, skimming, competitive, promotional, psychological and loss leader pricing
• Place: distribution channels, the role of wholesalers and retailers, direct selling, e-commerce
• Promotion: advertising, sales promotion, public relations, digital and social media, celebrity endorsement
• Technology and the marketing mix
• Legal controls on marketing and consumer protection; trademarks, patents and copyright
• Opportunities and problems of selling in foreign markets

D · People in business

• The importance of a well-motivated workforce
• Financial methods of motivation: wage, salary, piece rate, commission, bonus, profit share, fringe benefits
• Non-financial methods: job rotation, job enrichment, job enlargement, teamworking, training, praise and recognition
• Maslow's hierarchy of needs, at the level of naming and applying the five stages
• Organisational structure: organisation charts, span of control, chain of command, hierarchy, delayering, delegation
• The role of management; leadership styles: autocratic, democratic, laissez-faire, paternalistic
• Trade unions and their role
• Recruitment and selection: job description, person specification, internal and external recruitment
• Training: induction, on-the-job and off-the-job; appraisal
• Reducing the size of the workforce; redundancy and dismissal
• Legal controls over employment, including the minimum wage, and their effect on employers and employees
• Internal and external communication; methods, channels and barriers

E · Operations and production

• The meaning of production and the transformation of inputs into outputs
• Job, batch and flow production; their suitability, advantages and drawbacks
• Productivity: output per worker, and how it may be raised
• Division of labour and specialisation
• The effect of technology on production methods
• Inventory: buffer stock, lead time, and the cash tied up in stock
• Quality control and quality assurance; why quality matters
• Factors affecting the location and relocation of a business
• Economies and diseconomies of scale

F · Costs, break-even and business decisions

• Identifying and classifying costs: fixed, variable, direct, indirect, total and average
• Average cost per unit, and how it changes with output
• Labour cost per unit, and the effect of a productivity change on it
• Opportunity cost and sunk cost
• Contribution per unit and total contribution
• Break-even output and break-even revenue; the contribution margin ratio
• Output required to achieve a target profit
• Margin of safety, in units and as a percentage
• Construction and interpretation of a break-even chart
• The effect on break-even of a change in price, variable cost or fixed cost
• The uses and limitations of break-even analysis
• The effect of a price change on revenue and on profit when volume also changes
• Markup and margin, the difference between them, and conversion from one to the other
• Return on investment as gain divided by the cost of the investment

G · Finance, cash and financial statements

• Why a business needs finance: start-up, expansion, day-to-day operation
• Sources of finance, internal and external, and the difference between short-term and long-term needs
• Internal sources: retained profit, sale of assets, reduction in inventory
• External sources: bank loan, overdraft, trade credit, share issue, leasing, hire purchase, mortgage, grants, venture capital, crowdfunding
• Choosing an appropriate source, and matching the source to the need
• The risks of borrowing
• The importance of cash; the difference between profit and cash
• Cash-flow forecasting: receipts, payments, net cash flow, opening and closing balances
• Causes of and remedies for cash-flow problems
• Working capital and why a business needs it
• The meaning of liquidity, and why a business may be profitable yet unable to pay its debts as they fall due
• The income statement: revenue, cost of goods sold, gross profit, operating profit, expenses, net profit
• The statement of financial position: assets, liabilities and owner's equity; current and non-current items
• Gross profit margin, operating profit margin and net profit margin; why and how accounts are used, and by whom

H · The external environment

• The business cycle: boom, recession, recovery
• Inflation, unemployment and interest rates, and their effect on a business
• How government policy affects business activity
• Environmental concerns and sustainability as both opportunity and constraint
• Ethical behaviour and its costs and benefits; corporate social responsibility
• Globalisation and its effect on business
• Multinational companies: reasons for growth, and effects on host countries
• Exchange rates and their effect on importers and exporters, at the level of direction and consequence

I · Quantitative methods

• Percentages, percentage change and percentage of a total
• Ratio and proportion
• Averages: mean and median
• Reading, completing and interpreting tables, bar charts, line graphs and pie charts
• Multi-step money calculations across revenue, cost, contribution and profit
• Combining a price change and a volume change by multiplying factors
• All formulas required are printed on the Category 1 Formula and Definitions Sheet

J · Reading business information critically

• The difference between a percentage point and a percentage change
• The base of a percentage, and why a percentage without its denominator cannot be interpreted
• When a mean is misleading and a median is more representative
• Correlation and causation
• Sample size and how a sample was selected
• Double counting
• Vanity metrics: figures that rise reliably but are not connected to value created
• Identifying which single figure in a set of business statements is wrong, and correcting it

NOT EXAMINABLE IN THIS CATEGORY

This list is as binding as the content above.

• Investment appraisal in any form: payback, accounting rate of return, present value, net present value, internal rate of return, compound annual growth rate.
• Elasticity of demand or supply in any form.
• Ratio analysis beyond gross and net profit margin. The current ratio, acid test, ROCE, gearing, inventory turnover, receivable and payable days and the cash conversion cycle are Category 2 only.
• Subscription and unit economics: ARPU, churn, customer lifetime, LTV, CAC and related measures.
• Depreciation calculations by any method; double entry book-keeping, ledgers, journals, trial balance, control accounts and bank reconciliation.
• Costing systems: marginal versus absorption costing, overhead absorption, standard costing and variance analysis.
• Operating leverage and its effect on profit.
• All macroeconomic theory, all economic diagrams including demand and supply curves and production possibility curves, and all market structure theory.
• Statistical concepts beyond those listed in section J: survivorship bias, selection bias, regression to the mean and anchoring are Category 2 only.

COGNITIVE DEMAND