Practice 3.7 Cash flow 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 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 2
HLPaper 2
FreshSteps Foundation
FreshSteps Foundation is a non-profit social enterprise based in Kenya that installs small-scale water filtration systems in rural communities. It operates as a private limited company (Ltd) but reinvests all surplus profits to expand its social impact rather than paying dividends.
Its business objectives include achieving financial sustainability and maintaining a minimum return on capital employed (ROCE) of 5% to fund future installations without relying heavily on grants.
Table 1: Statement of Profit or Loss for FreshSteps Foundation for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 2,600 |
| Cost of sales | 1,300 |
| Operating expenses | 1,050 |
| Depreciation expense | 100 |
| Interest expense | 40 |
| Tax | — (tax-exempt) |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 3,500 |
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
1.[2]
Calculate the gross profit for FreshSteps Foundation. Show all your working.
2.[2]
State why FreshSteps Foundation is tax exempt.
3.[2]
Calculate the current ratio for FreshSteps Foundation. Show all your working.
4.[2]
Calculate the payback period for the new project. Show all your working.
5.[2]
Explain one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
Question 3
SLPaper 2
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.’s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| 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 4
HLPaper 2
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: 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 | 150 | 200 | 250 |
| Crowdfunding contributions | 25 | – | – |
| Investor seed funding | – | – | 100 |
| Total cash inflows | 175 | 200 | 350 |
| Cash outflows | |||
| Packaging and ingredients | 120 | 120 | 130 |
| Wages | 30 | 30 | 30 |
| Equipment leasing | 10 | 10 | 10 |
| Distribution and marketing | 17 | 43 | 50 |
| Total cash outflows | 177 | 203 | 220 |
| Net cash flow | (2) | (3) | 130 |
| Closing balance | 1 | (2) | 128 |
Answer all the questions.
1.[2]
Using Table 1, calculate the total net cash flow for the quarter
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.
4.[2]
Identify the pricing strategy PulseFuel Ltd. may be considering and 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 5
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 6
HLPaper 2
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
1.[2]
Calculate the gross profit for EcoFreight Solutions. Show all your working.
2.[2]
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
3.[2]
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
4.[2]
Calculate the payback period for the new automated sorting hub project. Show all your working.
5.[2]
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Question 7
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 8
HLPaper 2
[5] Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
1.[2]
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Question 9
SLPaper 2
FlexiFreeze Ltd.
FlexiFreeze Ltd. is a medium-sized business that manufactures portable solar-powered refrigeration units for off-grid medical and disaster relief use. It was originally set up as a partnership but restructured into a private limited company (Ltd) after receiving a contract from an international NGO. The company’s business purpose is to deliver low-cost, high-impact refrigeration solutions to underserved communities while achieving sustainable long-term growth.
In Q2 2024, the business launched a new production facility to meet rising demand. While this supported its growth and evolution, it also strained liquidity. Some stakeholders, including suppliers and staff, have expressed concerns about delayed payments and overtime demands.
The finance team has provided the final income statement for Q2 2024 and a comparison with budgeted figures, alongside a cash flow forecast to assess short-term financial pressures.
Table 1: Budgeted vs Actual Income Statement – Q2 2024
| Item | Budgeted (£) | Actual (£) |
|---|---|---|
| Sales revenue | 950,000 | 900,000 |
| Cost of goods sold | 520,000 | 580,000 |
| Operating expenses | 310,000 | 330,000 |
| Net profit | 120,000 | — |
Table 2: Cash Flow Forecast – July 2024
| Item | Amount (£) |
|---|---|
| Opening balance | 40,000 |
| Cash inflows | 250,000 |
| Cash outflows | 295,000 |
| Closing balance | — |
—
1.[2]
Calculate the actual net profit for Q2 2024 Show all your working.
2.[2]
Comment on how the company’s cash flow and profit results might affect its relationship with stakeholders.
3.0
Suggest one risk FlexiFreeze Ltd. may face as it expands.
4.[2]
Analyse how the company’s business purpose may influence strategic financial decisions as it grows.
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.