09.3 objectives of financial management

Question 1

Objectives

Answer 1

• Profitability
• Growth
• Efficiency
• Liquidity
• Solvency

Question 2

Objectives: PROFITABILITY

Answer 2

• Excess of revenue or income over expenses or costs
• Achieved by monitoring revenue, pricing, policies, inventory

Question 3

Objectives: GROWTH

Answer 3

• Ability of the business to increase its size in the longer term

Question 4

Objectives: EFFICIENCY

Answer 4

• Ability of a business to minimise its cost and manage its assets so that maximum profit is achieved with the lowest possible level of assets

Question 5

Objectives: LIQUIDITY

Answer 5

• Extent to which a business can meet its financial commitments in short term (less then 12 months)

Question 6

Objectives: SOLVENCY

Answer 6

• Extent to which a business can meet its financial commitments in long term (more then 12 months)
• Indicator of risk to an investment
• Low solvency = High gearing
• High solvency = Low gearing

Question 7

Short Term Financial Objectives

Answer 7

• Tactical (one to two years)
• Operational (day to day)
• For example, if the busines has a goal to achieve a 15 per cent increase in profit for the next 10 years, the tactical plans could be purchasing machinery

Question 8

Long Term Financial Objectives

Answer 8

• They are determined for a set period of time, generally more than five years