This document discusses financial objectives and their importance for organisations. Financial objectives are goals or targets set by the finance department or function within an organisation, which are consistent with other objectives and can be numerically measured. The document provides examples...
Financial Objective
- A financial objective is a goal or target pursued by the finance department (or
function) within an organisation
- Consistent with other objectives
- Numerical measurable target
Revenue Objective
- Earning a certain amount of revenue over a financial period
- Reasons
- Growth
- Charities donating to their cause
- Short term product selling
- Ped
Cost Objectives
Reducing costs by a given percentage
Maintain profit if operating in a market where prices are falling
Pressure aldi and lidl have placed on morrisons and morrisons
Can minimising costs mean you can offer lower prices
Profit objectives
- Profit as a simple figure
- As a percentage increase
- As a % compared to sales
Cash flow objectives
- Long cash cycles
- House builders - what does their cash flow look like
- Cash out
- Land
- Materials
- Labour
- Planning
Assets
- Investment
- The purchase of assets such as property, vehicles and machinery that will be
used for a considerable time
- Non-current assets
- Items a business owns that it expects to retain to retain for one year or longer
- Capital expenditure
- Spending undertaken by business to purchase non-current assets
Objectives for investment and returns
- Business set goals for the level of investment they wish to undertake over specific
future periods
- May be purchase of asset/growth
- Reduce investment if borrowing is too high
, Setting objectives for returns on investment
- A high figure is preferable in this case
- Though, high returns may come in future years
- Many investments are long term projects - managers may want to consider other
uses for their capital
- ROI (%) = (Net return (profit) / Investment (expense)) X 100
Capital structure objectives
- Capital structure is the way in which a business has raised the capital it requires to
purchase its assets
- A business can borrow money, sell shares or use profits to fund capital expenditure
- Loan capital
- Share capital
- A business with a high level of borrowing over 50% are known as highly geared
- Interest payments with high gearing
Internal influences on financial objectives
- Number of employees
- Corporate objectives
- Growth
- Enter a new market
- Type of product
- Ped
- Past/current financial performance
- Number of sales
- Level of risk
- Management style
- Type/structure of the company
External influences on financial objectives
- Political
- Tax
- Economic
- Inflation, recession, unemployment
- Social
- Opinion, trends
- Technological
- Capital intensive
- Legal
- Minimum wage
- Environmental
- Waste disposal
Exam questions
To what extent is the process of segmentation and targeting and positioning useful to a
business entering the retail clothing market? (25 marks)
Case Study: Perfect Pooches
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