IB Business Management HL - Finance
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The Premium 2026–2027 Exam Study Guide
is a carefully developed resource designed to
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explanations, and focused revision
techniques.
This guide provides more than just practice
material—it offers a guided learning
approach that helps you understand key
concepts, apply them correctly, and improve
your ability to handle exam questions with
confidence. By combining updated
questions with well-
Start-up Capital - ANSWER✅Capital needed by an entrepreneur to set up a business
,Working Capital - ANSWER✅The capital needed to pay for raw materials, day-to-day
running costs and credit offered to customers; it is the finance a business has to operate
its daily activities
Working Capital Formula - ANSWER✅Current Assets - Current Liabilities
What is Finance required for? - ANSWER✅- Start-up Capital
- Working Capital
- Expansion Costs
- Sudden Expense needs or situations
- R&D
Capital Expenditure - ANSWER✅Purchase of assets used for more than 1 year, it is
recorded as a fixed asset
Revenue Expenditure - ANSWER✅Spending on items for operations or transactions
for a specific operating period that is consumed relatively quickly in a short time period
Internal Sources of Finance - ANSWER✅Finance raised from the business' own
assets or retained profits
Example of Internal Sources of Finance - ANSWER✅- Personal finds
- Retained Profits
- Sale of Assets
- Managing working capital more efficiently
Personal Finds - ANSWER✅Using the owner's own savings as an internal source of
finance -- typically done by sole traders
Pros and cons of Personal Finds - ANSWER✅Pros
- Control
- Interest Free
Cons
- Opportunity cost of using it elsewhere (e.g. saving in bank)
Retained Profits - ANSWER✅The profit left after all deductions, including dividends
and is reinvested in the business as a source of finance ('ploughed back')
Pros and cons of using Retained Profits as SoF - ANSWER✅Pros
- Permanent Source, there's no payback required
Cons
- Unreliable after tax and dividends, may be too little
, Sale of Assets - ANSWER✅When a business sells off its unwanted or unused assets
to raise finance or when they sell it then lease it back
Pros and cons of Sale of Assets for a SoF - ANSWER✅Pro
- Earning from assets that aren't used
Con
- Leasing Charge
- May be useful in the future
How do firms manage working capital more efficiently for a SoF? -
ANSWER✅Reducing working capital for stocks and credits so this capital can be
released to use elsewhere
Pros and Cons of managing working capital more efficiently for SoF - ANSWER✅Pro
- No direct costs
Con
- Could possibly reduce liquidity to risky levels
External Sources of Finance - ANSWER✅Finance raised from sources outside the
business
What are some short-term external sources of finance? - ANSWER✅Overdrafts; Trade
credit; Debt-factoring
What are some medium-term external sources of finance? - ANSWER✅Hire purchase;
Leasing
What are some long-term external sources of finance? - ANSWER✅Long-term loans;
Debentures; Sale of Shares; Rights issuing; Grants; Venture Capitalist; Business
angels; Subsidies; Micro finance
Overdraft - ANSWER✅bank agrees to a business borrowing up to an agreed limit as
and when required
Pro and Con of Overdraft - ANSWER✅Pro=Flexible; Con=Possibly High interests
What is Trade Crediting? - ANSWER✅Delaying payments to creditors
Pro and Con of Trade Credits - ANSWER✅Pro=No Interest; Con=Loss of discounts or
trust in the relationship
Debt-Factoring - ANSWER✅selling of claims over debtors to a debt factor in exchange
for immediate liquidity - only a proportion of the value of the debts will be received as
cash
Premium 2026–2027 Exam Study Guide:
Updated Questions, Fully Explained
Solutions, Concept Reinforcement &
Strategic Revision Support
Description
The Premium 2026–2027 Exam Study Guide
is a carefully developed resource designed to
support students in achieving stronger exam
performance through structured practice, clear
explanations, and focused revision
techniques.
This guide provides more than just practice
material—it offers a guided learning
approach that helps you understand key
concepts, apply them correctly, and improve
your ability to handle exam questions with
confidence. By combining updated
questions with well-
Start-up Capital - ANSWER✅Capital needed by an entrepreneur to set up a business
,Working Capital - ANSWER✅The capital needed to pay for raw materials, day-to-day
running costs and credit offered to customers; it is the finance a business has to operate
its daily activities
Working Capital Formula - ANSWER✅Current Assets - Current Liabilities
What is Finance required for? - ANSWER✅- Start-up Capital
- Working Capital
- Expansion Costs
- Sudden Expense needs or situations
- R&D
Capital Expenditure - ANSWER✅Purchase of assets used for more than 1 year, it is
recorded as a fixed asset
Revenue Expenditure - ANSWER✅Spending on items for operations or transactions
for a specific operating period that is consumed relatively quickly in a short time period
Internal Sources of Finance - ANSWER✅Finance raised from the business' own
assets or retained profits
Example of Internal Sources of Finance - ANSWER✅- Personal finds
- Retained Profits
- Sale of Assets
- Managing working capital more efficiently
Personal Finds - ANSWER✅Using the owner's own savings as an internal source of
finance -- typically done by sole traders
Pros and cons of Personal Finds - ANSWER✅Pros
- Control
- Interest Free
Cons
- Opportunity cost of using it elsewhere (e.g. saving in bank)
Retained Profits - ANSWER✅The profit left after all deductions, including dividends
and is reinvested in the business as a source of finance ('ploughed back')
Pros and cons of using Retained Profits as SoF - ANSWER✅Pros
- Permanent Source, there's no payback required
Cons
- Unreliable after tax and dividends, may be too little
, Sale of Assets - ANSWER✅When a business sells off its unwanted or unused assets
to raise finance or when they sell it then lease it back
Pros and cons of Sale of Assets for a SoF - ANSWER✅Pro
- Earning from assets that aren't used
Con
- Leasing Charge
- May be useful in the future
How do firms manage working capital more efficiently for a SoF? -
ANSWER✅Reducing working capital for stocks and credits so this capital can be
released to use elsewhere
Pros and Cons of managing working capital more efficiently for SoF - ANSWER✅Pro
- No direct costs
Con
- Could possibly reduce liquidity to risky levels
External Sources of Finance - ANSWER✅Finance raised from sources outside the
business
What are some short-term external sources of finance? - ANSWER✅Overdrafts; Trade
credit; Debt-factoring
What are some medium-term external sources of finance? - ANSWER✅Hire purchase;
Leasing
What are some long-term external sources of finance? - ANSWER✅Long-term loans;
Debentures; Sale of Shares; Rights issuing; Grants; Venture Capitalist; Business
angels; Subsidies; Micro finance
Overdraft - ANSWER✅bank agrees to a business borrowing up to an agreed limit as
and when required
Pro and Con of Overdraft - ANSWER✅Pro=Flexible; Con=Possibly High interests
What is Trade Crediting? - ANSWER✅Delaying payments to creditors
Pro and Con of Trade Credits - ANSWER✅Pro=No Interest; Con=Loss of discounts or
trust in the relationship
Debt-Factoring - ANSWER✅selling of claims over debtors to a debt factor in exchange
for immediate liquidity - only a proportion of the value of the debts will be received as
cash
