Setting financial objectives Flashcards
(10 cards)
1
Q
What is a financial objective?
A
A specific goal or target relating to the financial performance, resources and structure of a business.
2
Q
What are the benefits of setting objectives?
A
- It provides a focus for the entire business
- A measure of success or failure for the business
- Reduces the risk of business failure
- Helps coordinate the different business functions
- Provides a target to make investment decisions
- Indicates to stakeholders what the priorities of the management are
3
Q
Revenue objectives
A
- Revenue growth
- Sales maximisation
- Market share
4
Q
Cost
A
- Cost minimisation
- Productivity (unit per worker, capacity utilisation)
5
Q
Profit
A
- Specific level of profit
- Rate of profitability (as a % of revenue)
- Profit maximisation
- Exceed industry or market profit margins
6
Q
Cash flow
A
- Maximum level of debt
- Amount of cash tied up in working capital
- Cash flow to profit %
7
Q
Capital structure
A
- Gearing ratio
- Debt/equity ratio
8
Q
Return on investment
A
- Objectives relating to the level of capital expenditure
- Objectives relating to the return on investment
9
Q
Internal inflences on financial objectives
A
- Corporate objectives - finance objectives should not conflict with these
- Finance - profitability, cash flow, availability of finance
- Human resources - recruitment costs, training costs, methods of motivation, types of leadership
- Marketing - product life cycle, MMIX
10
Q
External influences on financial objectives
A
- Political - government, but can also be customers, employees, local community, environment
- Economic - changes in demand, interest rates, exchange rates, government economic policies
- Social - 24/7 access, e-commerce, customer expectations
- Technological - sophisticated computers so objectives can be regularly monitored
- Legal - Health & Safety, environmental changes, tax changes
- Environmental - greater expectation to source, produce, recycle and dispose in an environmentally friendly way
