Business Studies · Oct / Nov 2024 · Paper 11 · Question 3

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JTA is a public limited company. It sells holidays in a mass market. The business has 44 shops and 200 employees. The Finance Director is considering ways a business can increase its profit. 3 She has been asked to analyse JTA’s financial performance using ratio analysis. An extract from JTA’s financial statements is shown in Table 3.1. Table 3.1 Extract from JTA’s financial statements for 2023 ($ million) 900 Revenue 100 Profit 800 Capital employed

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3(a)[2]
Define ‘capital employed’. Award two marks for a full definition. Award one mark for a partial definition. (Shareholders/owners) equity plus non-current liabilities and is the total long-term capital invested in the business [2]
OR Value of all long-term finance invested in a business [2]
OR Represents how much money has been invested in the business to pay for all assets [2]
Partial definition e.g. finance/money invested in a business [1]
2 Accept correct calculations for 2 marks:
Non-current assets + working capital
Long term liabilities plus equity
Total assets – current liabilities Notes
3(b)[2]
Calculate JTA’s return on capital employed (ROCE). Show your working. Award 2 marks for a correct answer. Award 1 mark for correct method but incorrect answer. Correct answer: 12.5% [2]
Method: Profit ÷ capital employed × 100 [1]
OR 100 ÷ 800 × 100 [1]
If correct answer given with no working shown award 2 marks. 2 Only award 1 mark if 12.5% is written as part of the answer but is not given as the final answer.
3(c)[4]
Outline two benefits to JTA of selling in a mass market. Award 1 mark for each relevant benefit (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
High number of customers/sales [k] from its 44 shops [app]
Spread risk [k] when selling holidays [app]
Economies of scale/examples of economies of scale [k] which could help increase its profit of $100m [app]
Opportunities for growth [k] for this public limited company [app] 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:
Holidays
$900m (revenue)
$100m (profit)
44 shops
Public limited company
200 employees
(Finance director is considering) increase to profit Other appropriate examples can be credited. Notes
3(d)[6]
Explain one advantage and one disadvantage of JTA being a public limited company. Award 1 mark for identification of each relevant advantage/disadvantage (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: Advantages:
Able to raise more/large amount of finance [k] to fund growth [an] in this mass market [app]
No restrictions on buying/selling shares / can sell shares to general public [k] so can raise more/large amounts of finance [an]
Limited liability (for shareholders) [k] as personal assets do not have to sold if the business cannot pay its debts [an]
Incorporated/separate legal identity [k]
Continuity [k] so the business will not have to close down on the death on any owner [an] Disadvantages:
Risk of takeover [k] of the holiday business [app] which could change the direction/objectives of the business [an]
Many legal formalities to follow [k] which increases costs [an]
Have to publish accounts [k] which takes time away from other activities [an]
Business information can be seen by competitors [k] therefore they can copy ideas / find ways to compete with you [an] 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:
Holidays
Mass market
$900m (revenue)
$100m (profit)
$800m (capital employed)
44 shops
200 employees
(Finance director is considering) increase to profit Other appropriate examples can be credited. Some points can be [k] or [an] but only award once. Notes
Shareholders expect dividends [k] which can decrease the amount of retained profit / increase cash outflows [an] Other appropriate responses should be credited. Notes
3(e)[6]
Do you think increasing prices is the best way for a business to increase its profit? 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 whether increasing price is the best way for a business to increase its profit. Points might include: Increasing prices:
Increases revenue (if sell the same amount of products) [k]
Higher prices may suggest better quality [k] therefore customers will be willing to pay the higher prices. [an]
Fewer customers [k] because customers may switch to competitors [an] reducing their market share [an]
Increase profit margin [k] Alternatives to increasing prices:
Buy cheaper raw materials [k] which may lower quality [an] leading to fewer sales [an]
Improve packaging/quality of product [k] increasing the number of sales [an]
Target new markets/develop new products [k] which could increase advertising costs [an]
Lower rent/expenses or other examples [k] lowering fixed costs [an] Other appropriate responses should be credited. 6 This is a general question so there are no marks for application. Some analysis can be used for different points, but only award once. Allow lower costs only once as either [k] or [an] Allow lower sales/higher sales as [an] only once. Customers may switch to competitors maybe [k] or [an] but allow only once. Notes Justification might include: Increasing prices could increase revenue [k] if sales stay the same [an]. Reducing the cost of raw materials could increase the profit margin [k] but lower the quality [an]. Increasing prices is a better way to increase profit because lower quality products could damage their reputation [eval] and higher prices if linked to quality may attract more customers [eval] Notes

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