Practice 3.2 Sources of finance with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Paper
Level
Question 1
HLPaper 2
EcoForge Ltd. is a UK-based company that manufactures energy-efficient building materials. To improve competitiveness, EcoForge has adopted a lean production strategy, including just-in-time (JIT) inventory systems and total quality management (TQM) initiatives. As part of its production planning review, the company is investing in new software to better align production schedules with customer orders.
EcoForge Ltd. plans to expand into the European market by opening a new manufacturing plant. The finance team has compiled key efficiency and financial data for 2024 to evaluate whether the company should fund this expansion internally or seek external sources of finance.
Table 1: Selected Financial Data – EcoForge Ltd. (2024)
| Item | Amount (£) |
|---|---|
| Revenue | 7,500,000 |
| Cost of goods sold | 4,400,000 |
| Operating expenses | 2,600,000 |
| Net profit | 500,000 |
| Average stock | 550,000 |
1.[2]
Explain one way total quality management (TQM) can support lean production at EcoForge Ltd.
2.[2]
Calculate the stock turnover ratio for EcoForge Ltd.
Show all your working.
3.[2]
Comment on what the stock turnover ratio result suggests about EcoForge Ltd.’s operational efficiency.
4.[2]
Suggest one internal and one external source of finance EcoForge Ltd. could use to fund the new plant.
5.[2]
Analyse how improved production planning could support EcoForge Ltd.’s financial and strategic goals.
Question 2
HLPaper 3
LuminaCare
Resource 1 – Company profile and financial context
LuminaCare is a Ghana-based, for-profit social enterprise that manufactures solar-powered medical devices for rural clinics and maternal health centers across Sub-Saharan Africa. Its flagship product is a solar fetal heart monitor, which allows midwives to detect complications during pregnancy without relying on grid electricity. The company raised seed capital from impact investors but has now reached an inflection point: demand has grown by 300%, and LuminaCare must decide whether to pursue a $2.5M Series A equity round or take on $1.2M in concessional debt from a development bank.
Resource 2 – CFO’s internal memo (Finance)
“Our burn rate is steady, but we’ve reached our credit limit with suppliers. We operate on 90-day payment terms with clinics, so cash flow is always tight. Series A equity gives us the scale to meet demand and build a second facility—but would dilute founder control and introduce board-level oversight. The concessional loan is low-interest and non-dilutive but comes with covenants: quarterly EBITDA targets, strict capex limits, and donor-style reporting. Any miss could trigger loan restructuring or early repayment.”
Resource 3 – HR performance dashboard (Q1–Q2 2025)
| Metric | Value |
|---|---|
| Staff turnover (last 6 months) | 22% |
| Time to fill technical roles | 49 days (↑ 24%) |
| % of roles with formal job descriptions | 58% |
| Managerial span of control | Avg. 12 direct reports |
| Avg. team engagement score | 67/100 (↓ from 78) |
| The head of HR notes that burnout and unclear career paths are leading to attrition, especially among product engineers and field deployment staff. |
Resource 4 – Marketing team proposal
“Clinics love our mission—but most have no idea who we are until we show up at trade shows. We need to invest in inbound marketing, including a multilingual website, CRM tools, and a referral rewards program for midwives. More crucially, we’re perceived as a donor-funded nonprofit, not a serious tech company. To attract hospital procurement officers and larger buyers, we must reposition the brand to emphasize product quality, not just affordability and ethics.”
Resource 5 – Email thread: CEO to CFO and Marketing Lead
Resource 6 – Feedback from key field partners
“We rely on LuminaCare’s devices, but their response time for repairs has worsened.” “Sometimes we get different pricing from different reps. There’s no standard process.” “I love the mission—but our procurement officer wants a brand that feels serious. A logo change isn’t enough.”
1.[2]
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
2.[6]
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for LuminaCare over the next five years.
Question 3
HLPaper 2
TerraVolt Ltd.
TerraVolt Ltd. is a European company specialising in the production of modular battery storage systems for renewable energy projects. After identifying an opportunity to expand into off-grid African markets, TerraVolt invested heavily in a new research and development (R&D) project to develop a lightweight, durable battery model.
However, unexpected production delays caused by supply chain disruptions forced TerraVolt to activate parts of its contingency plan, including outsourcing key components at higher costs. The finance team has prepared the company's final accounts and depreciation schedules to assess the financial impact and to plan for future investment needs.
Table 1: Statement of Profit or Loss for TerraVolt Ltd. for the year ending 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Sales revenue | 10,200 |
| Cost of sales | 6,300 |
| Gross profit | 3,900 |
| Operating expenses | 2,400 |
| Depreciation expense | 400 |
| Interest | 150 |
| Profit before tax | — |
| Tax | 150 |
| Profit for the year | — |
Table 2: Statement of Financial Position for TerraVolt Ltd. as at 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Non-current assets (at cost) | 2,000 |
| Accumulated depreciation | (800) |
| Current assets | 1,100 |
| Current liabilities | 750 |
| Long-term borrowings | 600 |
| Share capital | 700 |
| Retained earnings | — |
Additional information:
- The initial investment in machinery was €2,000,000.
- Machinery has an expected useful life of 5 years and a residual value of €0.
1.[2]
Calculate the profit before tax in 2024 for TerraVolt Ltd. Show all your working.
2.[2]
Calculate TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024. Show all your working.
3.[2]
Using the straight-line depreciation method, calculate TerraVolt Ltd.’s annual depreciation expense based on the machinery investment. Show all your working.
4.[2]
Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024. Show all your working.
5.[2]
Comment on what the financial statements reveal about TerraVolt Ltd.’s profitability and liquidity position.
Question 4
SLPaper 2
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.’s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| Revenue | 120,000 |
| Cost of goods sold | 70,000 |
| Operating expenses | 30,000 |
| Cash inflows | 45,000 |
| Cash outflows | 60,000 |
| Opening cash balance | 5,000 |
1.[2]
State two sources of finance used by EcoPod Ltd.
2.[2]
Calculate the net profit for the month. Show all your working.
3.[2]
Calculate the closing cash balance. Show all your working.
4.[2]
Identify one internal stakeholder and explain how they may be affected by EcoPod Ltd.’s cash flow problems.
5.[2]
Outline one advantage of operating as a private limited company.
Question 5
SLPaper 2
PureGlow Ltd.
PureGlow Ltd. is a skincare company that sells natural, plant-based beauty products. To support the launch of a new product line, the business used a mix of internal and external sources of finance. It relied on retained profit from previous years and also secured funding from a venture capital firm interested in ethical consumer brands.
The new product range was supported by a marketing plan focused on the premium segment. As part of the plan, PureGlow adjusted elements of its marketing mix, including packaging design and pricing. The company aims to increase market share and improve profit margins in a highly competitive industry.
Table 1 shows selected financial data for the first month after the launch.
Table 1: Financial data for PureGlow Ltd. (Month 1)
| Item | Amount ($) |
|---|---|
| Revenue | 140,000 |
| Cost of goods sold | 60,000 |
| Expenses | 50,000 |
| Net profit | ? |
1.[2]
State two sources of finance used by PureGlow Ltd.
2.[2]
Calculate the net profit for the month. Show all your working.
3.[2]
Explain one reason why profit is important for a business like PureGlow Ltd.
4.[2]
Identify one element of the marketing mix that was changed and explain its potential impact.
5.[2]
Outline one reason why creating a marketing plan is useful when launching a new product.
Question 6
SLPaper 2
Solveta Ltd.
Solveta Ltd. is a private limited company that manufactures eco-friendly packaging materials for global e-commerce businesses. The company recently launched a major marketing campaign to enter three new export markets. This campaign involved substantial investment in promotion, pricing adjustments, and changes to distribution (place) to align with regional consumer expectations.
To fund this expansion, Solveta used a mix of retained profit, a medium-term loan, and newly issued share capital. While sales revenue has increased, rising logistics and distribution costs have impacted short-term liquidity. The finance department has released Solveta’s statement of financial position and asked the marketing and finance teams to assess its implications for profitability and cash flow.
Figure 1. Solveta Ltd. Statement of financial position as at 30 June 2024
| Item | $ |
|---|---|
| Assets | |
| Non-current assets | |
| Property, plant and equipment | 600,000 |
| Less: Accumulated depreciation | (150,000) |
| Net non-current assets | 450,000 |
| Current assets | |
| Cash | 60,000 |
| Debtors | 85,000 |
| Stock | 105,000 |
| Total current assets | 250,000 |
| Total assets | 700,000 |
| Liabilities | |
| Current liabilities | |
| Bank overdraft | 12,000 |
| Trade creditors | 48,000 |
| Short-term loan | 40,000 |
| Total current liabilities | 100,000 |
| Non-current liabilities | |
| Borrowings—medium term | 180,000 |
| Total liabilities | 280,000 |
| Net assets | 420,000 |
| Equity | |
| Share capital | 300,000 |
| Retained earnings | 120,000 |
| Total equity | 420,000 |
1.[2]
Explain one reason Solveta Ltd. may have chosen to use more than one source of finance for its international marketing campaign.
2.[2]
Suggest one element of the marketing mix Solveta adjusted to support its international expansion
3.[2]
Calculate the current ratio and acid test ratio for Solveta Ltd. Show all your working.
4.[2]
Outline what these liquidity ratios suggest about Solveta’s short-term financial position.
5.[2]
Comment on how Solveta’s cost and revenue structure may affect its profitability.
Question 7
HLPaper 2
Question 51 PulseFuel Ltd.
PulseFuel Ltd. is a startup producing high-performance energy drinks aimed at endurance athletes. The company prides itself on its proprietary electrolyte formula, which forms the basis of its USP. Although sales have grown rapidly, production costs remain high and most sales are made on credit. PulseFuel Ltd. is considering adjusting its pricing strategy to gain market share in the short term.
Table 1 shows PulseFuel Ltd.'s cash flow forecast for the first quarter of 2025.
Table 1: Cash flow forecast for PulseFuel Ltd. for the first three months of 2025 (All figures in $000)
| January February March | |||||
|---|---|---|---|---|---|
| Opening balance | 3 | 1 | (2) | ||
| **Cash inflows ** | |||||
| Credit sales collected | 250 | ||||
| Crowdfunding contributions 25 | |||||
| Investor seed funding | 100 | ||||
| Total cash inflows | |||||
| Cash outflows | |||||
| Packaging and ingredients 120 120 120 120 | 1 130 | ||||
| Wages | 30 | ||||
| Equipment leasing | 10 10 | 10 | |||
| Distribution and marketing 17 | 50 | ||||
| Total cash outflows | 220 | ||||
| Net cash flow | (2) | 130 | |||
| Closing balance | (2) | 128 |
Answer all the questions.
1.[2]
Using Table 1, calculate:
(i) The total net cash flow for the quarter
(ii) The closing balance at the end of March
2.[2]
Explain one reason why PulseFuel Ltd. might be profitable but still experience negative cash flow in its first two months.
3.[2]
Suggest one external source of finance, other than crowdfunding or seed investment, that would help PulseFuel Ltd. smooth early cash flow problems. Justify your answer.
4.[2]
Identify the pricing strategy PulseFuel Ltd. may be considering and explain how this could affect its short-term and long-term positioning.
5.[2]
Explain how PulseFuel Ltd.'s USP could help support a move toward premium or contribution-based pricing in future.
Question 8
HLPaper 3
GreenTech Innovations
Resource 1 - Company Overview
GreenTech Innovations is a renewable energy firm founded in 2018, focusing on developing and deploying solar and wind energy solutions for both residential and commercial clients. With a mission to combat climate change and promote sustainable energy consumption, the company has seen significant growth due to increasing demand for green technologies.
CEO Rachel Thompson emphasizes, "Our goal is to make renewable energy accessible and affordable for everyone, but we face challenges in maintaining profitability while expanding our operations." Despite positive market reception, rising operational costs and competition in the renewable energy sector are pressing issues for GreenTech.
Resource 2 - Financial Performance Report (2023)
GreenTech Innovations
Financial Performance Summary for 2023
| Metric | Amount |
|---|---|
| Revenue | £5,000,000 |
| Gross Profit | £2,000,000 |
| Operating Expenses | £1,200,000 |
| Net Profit | £800,000 |
| Total Assets | £3,500,000 |
| Total Liabilities | £1,500,000 |
| Equity | £2,000,000 |
The company's revenue has increased by 25% from the previous year, but operating expenses have also risen due to investments in new technology and increased staffing costs, raising concerns about long-term profitability.
Resource 3 - Letter from the CFO
Subject: Financial Strategy Update
Dear Rachel,
As we analyze our current financials, it’s essential to develop strategies that balance our growth with profitability.
Here are my suggestions:
Streamline Operations: Assess areas where we can reduce costs without compromising service quality.
Explore New Markets: Consider expanding into regions with lower competition for renewable energy.
Invest in Technology: Leverage automation to enhance operational efficiency and reduce labor costs.
Looking forward to discussing this at our next meeting.
Best,
John Miller, CFO
Resource 4 - Interview with the CEO
In an interview with Eco Business News, CEO Rachel Thompson discussed GreenTech's vision and challenges. "The renewable energy sector is rapidly evolving, and while we are excited about our growth, we must remain vigilant about our operational efficiency.
Our commitment to sustainability and customer satisfaction drives our decisions, but profitability is critical for our long-term success. We're considering partnerships with other tech firms to innovate further."
Resource 5 - Social Media Announcement
1.[2]
Using an appropriate business management theory, identify a human need that GreenTech Innovations products satisfy for their target consumers.
2.[6]
Outline two challenges GreenTech Innovations faces in maintaining profitability. Support your answer with evidence from the resources.
3.[17]
Based on the resources and your business knowledge, recommend a comprehensive strategy to enhance GreenTech Innovations profitability and sustainability over the next five years. Your strategy should consider cost management, market expansion, technological innovations, and consumer engagement initiatives.
Question 9
HLPaper 2
GreenTech Innovations (GTI)
GreenTech Innovations (GTI) is an environmental startup specializing in carbon reduction technology. With an increasing global focus on sustainability and climate action, the company has significant growth potential but needs substantial funding to scale up production and expand into new markets.
Expansion Goals:
- Increase manufacturing capacity to meet rising demand.
- Invest in research & development (R&D) to improve technology.
- Expand into international markets, requiring logistical and operational setup.
- Strengthen marketing and distribution channels to accelerate adoption.
Key Financial Challenges:
- As a startup, GTI has limited internal funds and may struggle to obtain traditional bank loans.
- The company needs to balance immediate working capital needs with long-term financial sustainability.
- Maintaining control and ownership is a key concern for GTI’s founders.
- Given the high-tech nature of the product, GTI may face long development cycles before profitability is achieved.
Financing Options Under Consideration:
1. Long-Term Finance (Share Capital & Crowdfunding)
- GTI is considering issuing new shares to raise equity funding.
- Crowdfunding is an alternative, allowing public investors to support the company in exchange for equity or rewards.
- Other possible long-term sources: Venture capital or government grants for sustainability-focused businesses.
2. Short-Term Finance (Overdrafts, Trade Credit, Short-Term Loans)
- GTI could use an overdraft facility to manage short-term cash flow fluctuations.
- Trade credit from suppliers could help delay payments for raw materials while production scales up.
- Short-term loans may be a quick solution but come with high-interest rates.
1.[10]
Evaluate the use of short or long term sources of finance for GreenTech Innovations for its expansion.
Question 10
HLPaper 2
3.9 Budgets (HL only) 3.7 Cash flow 3.2 Sources of finance 4.1 Introduction to marketing 4.5 The seven Ps of the marketing mix
Question 55 CinnaBean Ltd.
CinnaBean Ltd. is a regional café chain known for its cinnamon-based desserts. The business was founded by a sole trader who used personal funds and retained profits to grow. It is now expanding into new regions after seeing steady market growth and rising customer loyalty.
The finance team prepared budgeted and actual figures for Q1 across three locations. The CEO is considering turning each café into a profit centre to enhance accountability. Meanwhile, CinnaBean is reviewing its marketing strategy and whether it should remain product-focused or shift toward a more market-driven approach.
Table 1: Performance Summary - Q1 (figures in $000)
| Category | ||||
|---|---|---|---|---|
| --------------------------------------- Revenue Cost of ingredients 130 Staff wages Utilities Marketing spend Total cost Net profit |
Additional information:
-
All cafés are centrally supplied, but some locations have begun experimenting with local product variations.
-
The owner is considering selling older equipment to fund tech upgrades.
-
Current assets: 300,000.
-
Market share in its home region rose from 12% to 15% over the past year; competitors are entering the same space.
Answer all the questions.
1.[2]
Calculate CinnaBean Ltd.'s liquidity position using the current ratio
2.[2]
State two internal source of finance that could be used for new tech upgrades
3.[2]
Explain the difference between a cost centre and a profit centre using CinnaBean Ltd.'s cafés as context.
4.[2]
Identify one adverse and one favourable variance in Table 1
5.[2]
Explain one advantage for CinnaBean Ltd. of increasing its market share and becoming the market leader.