Business Studies · May / June 2024 · Paper 11 · Question 3

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IDT manufactures clothes for the mass market. It is a multinational company with factories in 4 countries. IDT has short-term and long-term financial needs. The Finance Director is analysing 3 IDT’s statement of financial position. An extract is shown in Table 3.1. He has been asked to calculate working capital and to explain how an increase in non-current liabilities might affect IDT. Table 3.1 Extract from IDT’s statement of financial position ($ million) 2023 2022 420 380 Current assets 280 250 Current liabilities 400 300 Non-current liabilities

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3(a)[2]
Define ‘mass market’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Where there are a large number of sales of a product [2]
OR A large market containing lots of customers buying similar products [2]
Partial definition e.g. lots of sales/customers [1]
OR lots of buyers [1]
OR market for goods that are produced in large quantities [1]
2 For two marks candidates must have the idea of a ‘Large number of sales’ and it is for ‘one product’. Notes
3(b)[2]
Calculate IDT’s working capital in 2023. Award 2 marks for correct answer. Award 1 mark for correct method but incorrect answer. Correct answer: $140 million [2]
Correct method e.g. 420 – 280 [1]
OR Current assets – current liabilities [1]
If correct answer given with no working shown award two marks. 2 Award only 1 mark if $140 million is written as part of the answer but is not given as the final answer. Award max 1 where candidate calculates working capital for 2022 using the correct method i.e. $130 million [1]. For 2 marks the answer must have the right units i.e. million/m in answer. Notes
3(c)[4]
Outline one reason why IDT might need the following types of finance: Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include: Short-term finance:
To pay day-to-day costs/working capital [k] when making clothes [app]
Improve cash flow position/liquidity [k] of the multinational company [app]
Meet any unexpected emergencies/opportunities [k] Long-term finance:
Fund expansion/growth [k] such as the new factory [app]
Purchase non-current assets [k] in one of the 4 countries [app]
Develop new products [k] Other appropriate responses should be credited. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Multinational company
Clothes or related words such as shirts, trousers
Manufacturer
Mass market
Factory
4 countries
$140 million (working capital)
$280 million (current liabilities)
$400 million (non-current liabilities) Other appropriate examples can be credited. Notes
3(d)[6]
Explain two ways an increase in non-current liabilities might affect IDT. Award 1 mark for identification of each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:
Must pay interest [k] on the $400 m [app] which increases expenses/cash outflows [an]
Difficult to raise additional finance/more collateral required [k] as lenders may worry whether the business will be able to repay [an] despite being a multinational company [app]
More difficult to repay loans/more debt to pay back [k] increases financial risk [an] for this clothing retailer [app] Other appropriate responses should be credited. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Multinational company
Clothes or related words such as shirts, trousers
Manufacturer
Mass market
Factory
4 different countries
Working capital / $140 million
$400 million (non-current liabilities)
$280 million (current liabilities)
$420 million (current assets) Other appropriate examples can be credited. Notes
3(e)[6]
Explain two advantages to a business of being a multinational company. Which advantage do you think is likely to be the most important? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to which is likely to be the most important advantage to a business of being a multinational company. Points might include:
Increase sales/new customers/access new markets [k] increasing revenue [an]
Improve brand image/reputation [k] to help increase/maintain customer loyalty [an]
Spreading risk [k] as not reliant on one market for all its sales/fall in sales in one country can be offset by increase in another [an]
Economies of scale [k] leading to lower average/unit costs [an]
Easier access to/cheaper raw materials [k] reducing transport costs [an]
Lower cost of labour (in some countries) [k] improving profit margin [an]
Avoid import quotas/tariffs [k]
Lower/favourable tax rates/government grants/subsidies [k] Other appropriate responses should be credited. 6 This is a general question so there are no marks for application. Notes Justification might include: An advantage is access to new markets [k] increasing revenue [an]. Also easier access to raw materials [k] may reduce transport costs [an]. Access to raw materials is more important because lower costs may lead to lower prices helping the business be more competitive [eval] and improve their market share [eval]. Notes

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