Netherlands HAVO 5 (eindexamenjaar) Business Economics
Chapters: 3
1. Investing and financing
Investing · Financing
- Investment Appraisal: Payback, ARR and NPV – Investment appraisal means judging whether a big spend (a machine, a shop, a new product) is worth it. Payback period = how long until the cash coming in repays the cost. ARR = average yearly profit ÷ initial cost × 100. NPV = sum of future cash flows discounted to today − initial cost; a positive NPV adds value. Firms also test sensitivity (what if sales fall?) and weigh risks and non-financial factors.
- Sources of Business Finance – Every business needs money for long-term assets (fixed capital) and daily running (working capital). This money comes from two big pools: owners' funds (equity shares, preference shares, retained earnings) that need not be paid back, and borrowed funds (debentures, bonds, bank and institution loans, public deposits, trade credit, inter-corporate deposits) that must be repaid with interest.
2. Financial management
Recording financial information · Costs and profit for a service company
- Financial Statements of a Sole Proprietor – At the end of the year, the trial balance is turned into two statements. The trading and profit and loss account uses revenue items to find gross profit, operating profit and net profit. The balance sheet uses capital items to show assets, liabilities and capital on the last day, grouped and arranged in order. Its closing balances open next year's books through the opening entry.
- Break-Even Analysis – A business breaks even when total revenue equals total cost, so profit is zero. Each unit sold brings a contribution = price − variable cost per unit, which first pays off the fixed costs. Break-even output = fixed costs ÷ contribution per unit. Sales above this make a profit; below it make a loss. Margin of safety = actual sales − break-even sales. To earn a target profit, sell (fixed costs + target profit) ÷ contribution per unit.
3. Reporting and electives
Annual accounts · Elective topics
- Financial Statements of a Sole Proprietor – At the end of the year, the trial balance is turned into two statements. The trading and profit and loss account uses revenue items to find gross profit, operating profit and net profit. The balance sheet uses capital items to show assets, liabilities and capital on the last day, grouped and arranged in order. Its closing balances open next year's books through the opening entry.
- Business Economics: How a Firm Thinks About Money – Business economics looks at a problem the way a manager of a firm does. A firm uses inputs (labour, capital, raw materials, the entrepreneur's ideas) to make output. Costs are fixed (rent, same every month) or variable (change with output). Revenue = price × quantity. Profit = revenue − total cost. Productivity = output ÷ input, for example glasses per hour. The break-even quantity = fixed cost ÷ (price − variable cost per unit). Every decision also touches stakeholders: customers, workers, owners, suppliers, lenders, government and the local community, and they may want different things.