Financial objectives

• What type of objective are financial objectives classified as?

  Functional objective or departmental objective
• What drives financial objectives?

  The overarching corporate objective
• What are the four basic types of financial objectives?

  1. Profit focus
  2. Revenue focus
  3. Cost focus
  4. Cash flow focus
• What does a profit focus financial objective aim for?

  To be profitable or maximize profit
• What is a revenue focus financial objective aimed at?

  To maximize revenue and market share
• What does a cost focus financial objective involve?

  Minimizing fixed and variable costs
• Why might a business focus on cash flow?

  To increase liquidity during uncertainty
• What is return on investment commonly abbreviated to?

  ROI
• What does the formula for return on investment involve?

  Return from investment divided by cost of investment
• What does a negative ROI indicate?

  It is not a good outcome
• Why is ROI considered better than gross profit margin?

  It measures efficiency in capital management
• What does ROI not account for?

  Qualitative factors and time adjustments
• What is a 'hurdle' in terms of ROI?

  A specific ROI percentage to aim for
• What is the capital structure of a business?

  • Breakdown of debt capital and equity capital
  • Debt capital: loans, debentures, bonds
  • Equity capital: share capital, retained profits
• What percentage of capital structure is debt capital if it is £9 million out of £10 million total?

  90%
• What risk does high debt capital pose if interest rates increase?

  Extra pressure on loans and debts
• Why might creditors be concerned about high debt capital?

  It indicates potential financial instability
• What trend has been observed in debt capital since 2008?

  Increased reliance due to low interest rates
• Which industries are likely to have heavier debt capital weighting?

  Mining and agriculture industries
• How does the ideal capital structure vary across industries?

  It depends on specific industry characteristics