This mini-lesson covers AQA Topic 6 — Finance: sources of finance, costs, revenue and profit, break-even, cash flow, and financial performance (gross and net profit margins).
Work through each screen, answer the questions as you go (some are wordy, some are calculations) and collect ⭐ stars. Press Start when you're ready.
Short vs long term: an overdraft suits short-term gaps; a loan or share issue suits long-term investment. Borrowing must be repaid with interest; issuing shares gives away ownership.
Quick check
Which source of finance?
?A sole trader needs to cover a short-term gap when a customer pays late. Which source is most suitable?
Costs, revenue & profit
Costs, revenue & profit
Key definitions:
Fixed costs don't change with output (rent, salaries).
Variable costs change with output (materials per unit).
Total costs = fixed + variable costs.
Revenue = price × quantity sold.
profit = total revenue − total costsif costs exceed revenue, the business makes a loss
Calculate
Your turn — total costs
1A firm has fixed costs of £6,000 and variable costs of £4 per unit. It makes 1,000 units. Calculate its total costs.
£
Hint: total costs = fixed + (variable per unit × units) = 6,000 + (4 × 1,000).
Calculate
Your turn — profit
2A business has total revenue of £90,000 and total costs of £72,000. Calculate its profit.
£
Hint: profit = total revenue − total costs = 90,000 − 72,000.
Break-even
Break-even analysis
The break-even point is the output where total revenue exactly equals total costs — no profit, no loss.
break-even (units) = fixed costs ÷ (price − variable cost per unit)the bottom line is the contribution per unit
Contribution per unit = selling price − variable cost per unit. It is what each sale contributes towards fixed costs and then profit.
Margin of safety = actual sales − break-even sales. It shows how far sales can fall before the business makes a loss.
Calculate
Your turn — break-even
3A product sells for £20, has a variable cost of £12 per unit, and the business has fixed costs of £8,000. Calculate the break-even output in units.
4The break-even output is 1,000 units and the business actually sells 1,400 units. Calculate the margin of safety in units.
units
Hint: margin of safety = actual sales − break-even sales = 1,400 − 1,000.
Sort it
Fixed cost, variable cost, or revenue?
Tap an item, then the group it belongs to.
🏠 Fixed cost
📦 Variable cost
💰 Revenue
Cash flow
Cash flow
Cash flow is the money flowing in and out over time. A business can be profitable but still run out of cash — so cash flow is vital.
net cash flow = cash inflows − cash outflowsclosing balance = opening balance + net cash flow
Solving cash problems: arrange an overdraft, delay payments to suppliers, chase customer payments faster, or reduce stock. Positive net cash flow builds the balance; negative net cash flow drains it.
Match it
Match the term to its meaning
Tap a statement on the left, then the correct term on the right.
Statement
Answer
Calculate
Your turn — closing balance
5A business starts a month with an opening balance of £2,000. Cash inflows are £9,000 and outflows are £7,500. Calculate the closing cash balance.
£
Hint: net cash flow = 9,000 − 7,500 = 1,500; closing = opening + net = 2,000 + 1,500.
Financial performance
Profit margins
Margins show how much of each pound of sales a business keeps as profit.
net profit margin = (net profit ÷ revenue) × 100net profit = gross profit − other running costs
Higher margins are better. Compare margins over time or against rivals to judge performance.
Quick check
Which margin?
?A shop has revenue of £100,000, cost of sales of £60,000 and other running costs of £25,000. Its gross profit is £40,000. Which figure is the gross profit margin?
Quick check
Profit but no cash?
?A business is profitable on paper but cannot pay its bills this month. What is the most likely explanation?
Recap
The big ideas to know
Sources: internal (savings, retained profit) vs external (loan, overdraft, shares)
Profit = total revenue − total costs; total costs = fixed + variable
Break-even (units) = fixed costs ÷ (price − variable cost); margin of safety = actual − break-even
Cash flow: net cash flow = inflows − outflows; closing = opening + net flow