Sources of Finance (AQA A Level Business): Exam Questions

Source B: Calder Vale Ceramics Ltd

Calder Vale Ceramics Ltd makes tableware: plates, bowls and serving dishes, thrown and glazed at a single factory in Lancashire. It is a private limited company owned by its two directors, Nadia Okonjo and Rob Hartley, and it employs 19 people.

It does not sell to the public. Its customers are restaurant groups, hotels and independent homeware shops, who order in batches and expect the same glaze to be available again in two years' time. Last year it fired and sold 77 500 pieces at an average price of £16.00, which brought in £1 240 000.

Two kilns do all the work. They cost £14 200 a month to run, staff, maintain and insure, and that is paid whether or not a single piece is fired. A third kiln would cost £180 000 and would let the company take the larger restaurant contracts it currently turns down.

The difficulty is not profit. The difficulty is when the money arrives. Calder Vale Ceramics Ltd's largest customers are restaurant groups, and they take 62 days to pay. Its own clay and glaze come from two small family firms, and Calder Vale Ceramics Ltd pays them within 30 days, because it always has. Finished inventory sits in the warehouse for about seven weeks before a customer calls it off.

Last year it made a gross profit of £558 000 on its £1 240 000 of revenue, once the £682 000 of clay, glaze, packaging and firing was paid for. Wages came to £298 000 and the kiln, factory, insurance and other fixed costs to £170 400, leaving a profit for the year of £89 600. It ended the year with £18 300 in the bank.

Appendix F: Data for two ways of paying for a third kiln

Source: Analyst

Assess whether a five-year bank loan, as set out in Appendix F, would be a suitable way for Calder Vale Ceramics Ltd to pay for a third kiln.

Source B: Brackenhill Films Ltd

Brackenhill Films Ltd makes documentaries and children's series in Bristol. It is a private limited company with eleven permanent staff: producers, an office manager and two editors. Everyone else is hired for the length of a production.

It does not sell to the public. Broadcasters and streaming services commission a programme, agree a fee and a budget, and Brackenhill Films Ltd delivers it. Last year it delivered four productions for a total of £2 140 000, an average of £535 000 each. The direct costs of making them came to £1 722 000. Fixed overheads, meaning the office, the permanent staff and the edit suites, were £468 000, and they are paid whether a production is in progress or not. The company therefore lost £50 000 on the year.

The budget for each production is agreed with the broadcaster at the start. If a production comes in under budget Brackenhill Films Ltd keeps the difference. If it goes over, Brackenhill Films Ltd pays the difference itself. On the four productions delivered last year the budgets were set by copying the previous year's figures for a similar programme and adding a little for inflation.

Money arrives in three instalments: a third when the programme is commissioned, a third when a rough cut is delivered and a third on final delivery. Costs do not arrive in three instalments. Crews, camera hire and studio time are paid as the work happens, which is why the company's bank balance looks the way it does.

Brackenhill Films Ltd has an overdraft facility of £50 000.

Appendix D: Brackenhill Films Ltd cash at bank, month by month

Source: Analyst

Assess whether the cash position shown in Appendix D means an overdraft would be a suitable source of finance for Brackenhill Films Ltd.

Source B: Halvergate Storage Ltd

Halvergate Storage Ltd rents storage units by the month. It has three sites in East Anglia, at Norwich, King's Lynn and Lowestoft, with 1 200 units between them. It is a private limited company owned by two brothers, Tom and Michael Ferris, and it employs nine people.

Its customers are households between moves, people who have downsized, and small businesses storing inventory. A unit costs an average of £100 a month. Once a unit is let it costs Halvergate Storage Ltd about £12 a month in electricity, cleaning and administration. Everything else is fixed: staff of £290 000 a year and rates, insurance and maintenance of £186 000, which are paid on the whole building whether the units inside it are full or empty.

Last year 80% of the units were let, which is 960 of the 1 200, and revenue was £1 152 000. Operating profit was £537 760. After £152 000 of interest, profit for the year before tax was £385 760.

The interest is there because the sites were built with borrowed money. The three sites together represent capital employed of £4.2 million, of which £2.6 million is long-term bank loans and £1.6 million is the brothers' own money.

Tom and Michael Ferris have set the company an objective: a return on capital employed of 15% within three years. They are also looking at a fourth site, at Bury St Edmunds, which would cost £1.6 million.

Appendix D: Halvergate Storage Ltd, summary of last year

Source: Analyst

Appendix F: Data for two ways of paying for a fourth site

Source: Analyst

Assess whether a further bank loan, as set out in Appendix F, would be a suitable way for Halvergate Storage Ltd to pay for a fourth site.

Source B: Marlowe Joinery Ltd

Marlowe Joinery Ltd makes bespoke staircases in a workshop outside Shrewsbury. It is a private limited company run by Gethin Marlowe, the third generation of his family to run it, and it employs 17 people, nine of them joiners who served apprenticeships there.

Every staircase is different. An architect or a builder sends drawings, Gethin Marlowe quotes a price, and if the quote is accepted the workshop builds it. Last year it made 560 staircases at an average price of £2 400, which is revenue of £1 344 000. Timber, fittings and the joiners' time on the job come to £1 560 a staircase. Everything else, meaning the workshop, the machinery, insurance, administration and the wages of people not on a job, comes to £392 000 a year.

The quoting is done by eye. Gethin Marlowe has forty years of it and is good at it, but each quote is its own small budget and nobody adds them up until the year end.

He is considering a computer-controlled cutting machine costing £340 000. It would cut the cost of a staircase to £1 410 and raise the workshop's fixed costs by £68 000 a year once depreciation and finance are counted. It would also lift what the workshop could make in a year from 600 staircases to 900.

The machine would be paid for by borrowing. Marlowe Joinery Ltd already has £280 000 of long-term loans against £620 000 of Gethin Marlowe's own money in the business.

Appendix D: Marlowe Joinery Ltd, summary of last year

Source: Analyst

Appendix F: Data for the cutting machine

Source: Analyst

Assess whether borrowing the £340 000 shown in Appendix F is a suitable way for Marlowe Joinery Ltd to pay for the cutting machine.

Calculate Marlowe Joinery Ltd's gearing before any new borrowing to support your answer.

Give your answer to one decimal place.

Source B: Foxhall Creamery Ltd

Foxhall Creamery Ltd makes hard cheese on the Shropshire border. It is a private limited company owned in equal shares by Kate Foxhall, who is 61, and Owen Ridd, who is 58, and it employs 48 people. Revenue last year was £6 800 000, sold to farm shops, delicatessens and independent grocers, none of whom takes more than 4% of output.

The cheese has to sit. The youngest thing Foxhall Creamery Ltd sells has been in the store for nine months, and its best-known cheese comes out at fourteen. Every wheel in the store is money already spent and not yet earned, and there are two rooms of them.

The accounts look reassuring. At the year end the company held £1 240 000 of inventory, was owed £680 000 by customers and had £410 000 in the bank, against £520 000 owed to suppliers, £118 000 in VAT and PAYE, and £194 000 of the bank loan falling due within the year. The loan stands at £1 460 000 in total, and the financial objective for this year is to reduce it by £200 000.

Foxhall Creamery Ltd values the cheese in its store at what the milk, the labour and the power have cost. A wheel that has been maturing for thirteen months appears in the accounts at the same figure as it did on the day it was made, although the price it will fetch has roughly doubled in the meantime.

The company needs a third maturing store, which will cost £900 000. It can pay for it out of the bank balance and this year's retained profit, or it can borrow again.

There is a larger question behind that one. Kate Foxhall wants to retire within five years. A cheese wholesaler has offered £4 900 000 for the company. The alternative the two of them have been reading about is an employee ownership trust, which would buy the business on behalf of the 48 staff and pay Kate Foxhall and Owen Ridd out of future profits over about seven years.

Appendix D: Foxhall Creamery Ltd, current assets and current liabilities

Source: Analyst

Assess whether Foxhall Creamery Ltd should pay for its third maturing store out of its own cash rather than borrowing.

Source A: Gymshark Ltd

Ben Francis was 19 when he asked his parents if he could use their garage to start making gym clothes he had designed. Whilst studying business at university, Ben teamed up with a school friend, and the gymwear business Gymshark Ltd was born.

Ben used his £5-an-hour wage at Pizza Hut and £1000 savings to invest in equipment like a sewing machine. Ben taught himself to sew and went to bodybuilding events to raise brand awareness. In 2012, Ben dropped out of university to focus on the business full-time.

The Gymshark Ltd brand has become a hit with younger gym goers and is doing well in a highly competitive market. Its competitors include Nike, Adidas and Puma. Instead of using traditional advertising or selling in high street shops, Gymshark Ltd has grown by having athletes and social media 'influencers' wear its clothes on platforms like Instagram, TikTok, and Facebook. Ben is also well known and still shares his own fitness videos online to promote the brand. The company now has 18 million followers on social media.

Gymshark Ltd is a private limited company. In 2021, it raised £200 million by selling shares to a company called General Atlantic. This made Gymshark Ltd one of relatively few British businesses valued at over $1 billion. Ben still owns a 70% stake in the company and has a clear vision of how he wants the business to develop. General Atlantic owns just over 20%. Managers at Gymshark Ltd own 10%. The funds were raised with the aim of expanding the business in North America, where Gymshark Ltd already makes a large part of its sales, and to grow the business rapidly in Asia. Ben has ambitious plans and wants to make the Gymshark Ltd brand the UK equivalent of Nike. The Nike brand was worth $31 billion in 2023 globally; market research suggests that 43% of people who buy Nike sportswear would do so again.

In October 2022, Gymshark Ltd made a significant investment and opened its first physical store on Regent Street in London.

Source: information sourced from Gymshark, 2024

Appendix A: Extracts from Gymshark Group Ltd's statement of financial position as at July 2024

Source: Companies House

Ben Francis has ambitious plans for Gymshark Ltd.

Evaluate two sources of external finance that Ben could use to fund these plans and recommend which one he should choose.

Source B: Brompton Bicycle Ltd

Brompton Bicycle Limited makes folding bicycles. Andrew Ritchie designed the first one in 1975 and built it in a workshop under a railway arch, and the company was registered the following year. Fifty years on, every Brompton is still made by hand and quality checked at the company's own factory in Greenford, west London. It is a private limited company with around 100 shareholders and is led by chief executive Will Butler-Adams, who joined the company in 2002 and has led it since 2008.

In principle the product has barely changed. A Brompton folds into a small package in under 20 seconds, so an owner can carry it onto a train, put it in a car boot or tuck it under a restaurant table. The range now includes electric, lightweight titanium and larger-wheel models. Brompton describes its purpose as creating urban freedom for happier lives, and it sells durability as part of the deal. Every frame carries a seven-year warranty, the bikes are designed to be repaired rather than replaced, and there are now more than a million Brompton owners and over 300 owners' groups around the world.

The year to 31 March 2025 was harder than usual. Turnover slipped by 0.9% to £121.45 million, the workforce fell by 54 people to 790, and cash at the bank almost halved. Over the same year the company's total liabilities rose by 53.5%.

Brompton would like to invest £15 million in its factory so that it can build more bikes at a lower cost per bike. It does not hold enough cash to pay for this out of its own resources. It could borrow the money from a bank, or it could ask its existing shareholders to buy new shares. Appendix F shows information on the two options.

Source: information sourced from Companies House and Brompton Bicycle Ltd, 2026

Appendix D: Brompton Bicycle Ltd selected financial data

Source: Companies House

Appendix F: Data for two ways of raising £15 million

Source: Analyst

Appendix F shows two ways in which Brompton Bicycle Ltd could raise £15 million.

Evaluate both options and recommend which one would be the better way for Brompton Bicycle Ltd to raise the £15 million.

Source B: Paper Lane Ltd

Paper Lane Ltd sells stationery, cards and gifts from two small shops in market towns about 15 miles apart. Nina Okafor and Rhys Pritchard opened the first shop nine years ago and set the business up as a private limited company, with the two of them as the only directors and shareholders. They now employ nine other people, most of them part time.

The shops sell notebooks, pens, wrapping paper, cards and small gifts. Customers come in to browse, and a large share of what they buy was not on a list when they walked through the door. Nina and Rhys buy most of their inventory from small makers and from two wholesalers, and they order the Christmas range in August to get an 8% early order discount.

The business makes most of its profit in six weeks. December takes more money than August, September and October put together. That pattern is the heart of Paper Lane's problem. The inventory for Christmas is paid for in the autumn, months before it is sold, so the money goes out long before it comes back.

Sales have been steady and the shops are busy. Even so, cash at the bank fell from £19 000 to £2 000 during the year to 31 January 2026, and at its lowest point in the autumn the company was £22 000 into its overdraft. The overdraft limit is £25 000. Appendix D sets out the company's financial position and Appendix E shows what Nina and Rhys forecast will happen to the cash balance over the coming year.

They have been talking about opening a third shop. Their accountant has told them to sort the cash out first. They are also arguing about whether to ask their customers what they actually want, or to trust what nine years behind the counter has taught them.

Appendix D: Paper Lane Ltd summarised statement of financial position

Source: Analyst

Appendix E: Paper Lane Ltd forecast closing cash balance, February 2026 to January 2027

The company's overdraft limit is £25 000.

Source: Analyst

Appendix F: Data for two ways of dealing with the autumn cash shortage

Source: Analyst

Appendix F shows two ways of dealing with Paper Lane Ltd's autumn cash shortage.

Evaluate both options and recommend which one would be the better way for Paper Lane Ltd to deal with the shortage.