Lesson 3.5.4

3.5.4 Making financial decisions: improving cash flow and profits Quiz: AQA Business, Unit 5

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 3.5.4, Making financial decisions: improving cash flow and profits: 20 multiple choice questions for the AQA Business (7132), Unit 5: Financial management, written with Revision Ninja.

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The 20 questions

  1. Which of these is a method of improving cash flow?

    • Investing surplus cash in long-term fixed assets without planning
    • Asking customers to pay deposits in advance
    • Buying large quantities of stock on credit without a sales forecast
    • Extending credit periods offered to customers to 90 days

  2. Which is a method of improving profitability?

    • Reducing variable costs per unit by negotiating better prices with suppliers
    • Paying higher dividends to shareholders from profits
    • Reducing the selling price below the variable cost
    • Increasing fixed costs by taking on a larger premises

  3. Factoring receivables can improve cash flow because it:

    • Brings forward cash that would otherwise arrive only when customers pay
    • Increases the business's gross profit margin
    • Removes the need to pay suppliers at all
    • Increases the number of customers who pay late

  4. A difficulty when trying to improve cash flow by reducing inventory is:

    • Lower stock prevents the business from producing any goods
    • Stock shortages may lose sales if buffer stock is cut too far
    • Stock reductions always increase costs by the same amount
    • Reducing stock means the business must pay more tax

  5. Which action reduces costs as a way of improving profit?

    • Increasing the number of managers in each department
    • Increasing spending on sponsorship without any sales target
    • Launching a new product line with higher fixed costs
    • Renegotiating supplier contracts for lower prices

  6. Which is a difficulty of improving profit by raising prices?

    • Higher prices always increase sales volume
    • Higher prices reduce the risk of bad debts to zero
    • Customers may switch to competitors if demand is price elastic
    • Higher prices remove the need for any cost control

  7. Improving cash flow by reducing payables days means:

    • Increasing the interest paid on overdrafts
    • Ignoring supplier invoices until the end of the year
    • Paying suppliers more slowly, which keeps cash in the business for longer
    • Paying suppliers sooner to keep cash in the business

  8. A firm offers a 5% discount for payment within 10 days. What is the likely effect?

    • Cash arrives later, but revenue increases
    • Cash and revenue both rise, with no cost to the firm
    • Cash is unaffected and revenue rises by 5%
    • Cash arrives sooner, but the discount reduces revenue per sale

  9. A firm cuts its annual advertising budget from 80,000 to 50,000 and sales stay the same. What is the likely effect on profit?

    • Profit rises by 30,000 if sales and other costs remain unchanged
    • Profit rises by 80,000, because the advertising budget is removed entirely
    • Profit falls by 30,000, because advertising is always profitable
    • Profit is unchanged, because costs do not affect profit

  10. Which is a risk of cutting staff training to improve profit?

    • Customers will not notice any change in service or quality
    • Productivity always rises immediately after training stops
    • Training costs are never tax deductible, so cutting them is illegal
    • Productivity and quality may fall, reducing revenue and profit over time

  11. A firm receives 60,000 of receipts each month but pays 70,000 in wages. What is its monthly cash position?

    • A surplus of 10,000 each month
    • A deficit of 130,000 each month
    • A deficit of 10,000 each month
    • No deficit, as wages are a fixed cost

  12. Which action most directly improves short-term cash flow?

    • Buying new machinery on a long-term loan
    • Selling surplus stock quickly at a discount to convert it into cash
    • Increasing the dividend paid to shareholders
    • Expanding into new overseas markets with no funding

  13. A business has revenue of 400,000 and costs of 340,000. It cuts its costs by 10%, with revenue unchanged. What is the new profit?

    • 100,000
    • 94,000
    • 74,000
    • 60,000

  14. Why might a firm find it difficult to improve cash flow by offering shorter credit terms to customers?

    • Shorter credit terms raise the cost of goods sold
    • Customers always pay early without any encouragement
    • Receivables reduce the business's cash balance by definition
    • Shorter terms can push customers to competitors that offer longer credit

  15. A business improves labour productivity so that the same output needs fewer workers. What is the likely effect on profit?

    • Labour cost per unit falls, which can increase profit if sales are not lost
    • Profit falls because productivity lowers revenue
    • No change, since labour costs never affect profit
    • Labour cost per unit rises, reducing profit

  16. Evaluate: what is the strongest argument that cutting costs is not always the best route to higher profit?

    • Costs are irrelevant to profit in every business
    • Cuts may damage quality, morale or future growth, so revenue can fall and offset the savings
    • Profit can only be raised by increasing fixed costs
    • Cutting costs always increases revenue by the same amount

  17. A business stretches its payables from 30 to 45 days on annual purchases of 730,000. How much cash does this release?

    • 30,000
    • 60,000
    • 15,000
    • 45,000

  18. Evaluate: a firm raises prices by 10% and loses 15% of its customers. What is the best-supported conclusion?

    • Profit always rises whenever prices rise
    • Revenue is unchanged because the lost customers are offset
    • Revenue rises by 10% because the price increased
    • Revenue falls by about 6.5%, so total revenue is likely to decline

  19. A business has sales of 250,000 and operating costs of 200,000. To reach a 25% profit margin with costs unchanged, what revenue is needed?

    • 300,000
    • About 266,667
    • 250,000
    • 225,000

  20. Evaluate: which difficulty is most significant when trying to improve both cash flow and profit at the same time?

    • Profit improvements always create cash flow instantly
    • Cash flow and profit always move in the same direction
    • Actions that improve one can harm the other, such as cutting stock to free cash but losing sales, so trade-offs must be managed
    • Improving cash flow never affects profit

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