Practice Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents 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
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
BeanBar Ltd.
BeanBar Ltd. is a medium-sized company that sells gourmet coffee beans online and in retail stores. The business recently launched a new premium coffee blend and carried out primary market research to better understand customer preferences before the launch. The findings helped inform the company’s updated marketing plan, which included promotional discounts and revised packaging.
Although initial sales were strong, the marketing manager is concerned that poor internal communication between the finance and sales teams may be affecting financial performance. The finance team has noted rising costs, while the operations team wants to reinvest in product development.
Table 1 shows selected financial data for the past two months.
Table 1: Selected financial data for BeanBar Ltd. for 2024
| Item | Month 1 ($) | Month 2 ($) |
|---|---|---|
| Revenue | 100,000 | 90,000 |
| Cost of goods sold | 40,000 | 42,000 |
| Expenses | 30,000 | 35,000 |
| Net profit | ? | ? |
| Current assets | 60,000 | 50,000 |
| Current liabilities | 30,000 | 40,000 |
1.[2]
Calculate the net profit for Month 1 and Month 2. Show all your working.
2.[2]
Calculate the current ratio for Month 2. Show all your working.
3.[2]
Explain one reason why a fall in net profit might concern the finance team.
4.[2]
Identify one method of primary market research used by businesses like BeanBar Ltd.
5.[2]
Outline one problem that may arise from poor internal communication between departments.
Question 5
SLPaper 2
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.’s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| 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 6
SLPaper 2
BiteFresh Ltd.
BiteFresh Ltd. is a company that produces ready-made healthy meals for supermarkets and gyms. Due to growing demand, the business is planning to open a second production facility. Management is deciding between two locations: one in an urban area with higher rent but closer to suppliers and customers, and another in a rural area with lower operating costs but limited infrastructure.
The finance team has produced updated financial data to help evaluate the company’s performance and support the location decision.
Table 1: Financial data for BiteFresh Ltd.
| Item | Amount ($) |
|---|---|
| Revenue | 400,000 |
| Cost of goods sold | 220,000 |
| Expenses | 130,000 |
| Fixed costs (per month) | 12,000 |
| Selling price per unit | 10 |
| Variable cost per unit | 4 |
| Current assets | 70,000 |
| Current liabilities | 35,000 |
1.[2]
Calculate the net profit for the business.
Show all your working.
2.[2]
Calculate the net profit margin.
Show all your working.
3.[2]
Calculate the current ratio.
Show all your working.
4.[2]
Calculate the break-even output per month.
Show all your working.
5.[2]
Outline one factor that BiteFresh Ltd. should consider when choosing between the urban and rural location options.
Question 7
SLPaper 2
PureGlow Ltd.
PureGlow Ltd. is a skincare company that sells natural, plant-based beauty products. To support the launch of a new product line, the business used a mix of internal and external sources of finance. It relied on retained profit from previous years and also secured funding from a venture capital firm interested in ethical consumer brands.
The new product range was supported by a marketing plan focused on the premium segment. As part of the plan, PureGlow adjusted elements of its marketing mix, including packaging design and pricing. The company aims to increase market share and improve profit margins in a highly competitive industry.
Table 1 shows selected financial data for the first month after the launch.
Table 1: Financial data for PureGlow Ltd. (Month 1)
| Item | Amount ($) |
|---|---|
| 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 8
SLPaper 2
VerdeLeaf
VerdeLeaf is a worker co-operative that produces compostable packaging for small food businesses. All employees are members who share in profits and help make decisions. As the business grew, VerdeLeaf introduced a more formal functional organisational structure, which has created friction between departments.
The business’s original objective was to remain local and values-driven, but it has recently started supplying national chains. While some members support this shift, others worry it goes against VerdeLeaf’s founding purpose. Recent feedback suggests rising demotivation in the production team, especially due to poor communication across departments and inconsistent involvement in decision-making.
The finance team has provided partial data for Q1 2024 and tasked a trainee to complete the statement of profit or loss.
Table 1: Financial data for VerdeLeaf – Q1 2024
| Item | Amount ($) |
|---|---|
| Units sold | 4,000 |
| Selling price per unit | 6.50 |
| Variable cost per unit | 2.10 |
| Salaries (production + sales) | 38,000 |
| Marketing and promotion | 14,000 |
| Office rent and overheads | 16,000 |
| Tax rate | 25% |
| Dividends paid to members | 12,000 |
Figure 1: Statement of profit or loss (partially completed)
VerdeLeaf Statement of profit or loss
for the quarter ended 31 March 2024
| Item | $ |
|---|---|
| Sales revenue | __________ |
| Cost of sales | __________ |
| Gross profit | __________ |
| Expenses: | |
| - Salaries | (38,000) |
| - Marketing and promotion | (14,000) |
| - Office rent and overheads | (16,000) |
| Profit before tax | __________ |
| Tax (25%) | __________ |
| Profit for period | __________ |
| Dividends | (12,000) |
| Retained profit | __________ |
1.[2]
Outline one challenge VerdeLeaf may face as it grows from a local co-operative to a national supplier.
2.[2]
Identify one external stakeholder and who may be interested in VerdeLeaf’s current situation.
3.[2]
Using the data in Table 1, calculate the blanks in the profit and loss account shown in Figure 1. Show all your working.
4.[2]
Explain what the profit and loss account suggests about VerdeLeaf’s cost and revenue structure.
5.[2]
Suggest one way VerdeLeaf could improve internal communication to support motivation among staff.
Question 9
HLPaper 2
SkyGen Ltd.
SkyGen Ltd. is a software company that previously operated using a traditional hierarchical structure with centralized decision-making. After losing several talented developers, the company began restructuring project teams and moving toward a flatter matrix system.
SkyGen has also updated its performance appraisal process and begun introducing self-managed development plans. The HR director is piloting new methods for evaluating staff performance while linking role enrichment to innovation output.
Table 1. Statement of Financial Position: SkyGen Ltd. (as at 31 December 2023) (All figures in $m)
| Description | $m |
|---|---|
| Property, plant and equipment | 1,800 |
| Accumulated depreciation | (600) |
| Non-current assets | 1,200 |
| Cash | 300 |
| Debtors | 450 |
| Stock | 250 |
| Current assets | 1,000 |
| Total assets | 2,200 |
| Trade creditors | 200 |
| Short-term loans | 200 |
| Current liabilities | 400 |
| Long-term borrowings | 300 |
| Total liabilities | 700 |
| Net assets | 1,500 |
| Retained earnings | 1,500 |
| Total equity | 1,500 |
Additional information:
- The PP&E figure includes $900m of specialized hardware expected to last 6 years.
- In 2023, that equipment was used to produce 15,000 units out of an expected 90,000-unit lifetime.
- Annual sales = $3,600m, of which 50% are credit sales.
- SkyGen previously used top-down summative appraisals but now trials peer-led feedback and project-based self-evaluations.
1.[2]
Calculate units-of-production depreciation for the year
2.[2]
Calculate SkyGen Ltd.’s debtor days.
3.[2]
Distinguish between summative and self-appraisal, using SkyGen Ltd. as context.
4.[2]
Explain how job enrichment and delayering might support SkyGen Ltd.’s move to a matrix structure.
5.[2]
Identify one limitation of bureaucracy in SkyGen’s previous structure
Question 10
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.