Financial Objectives

• Financial targets must be SMART to be effective
• What are financial objectives?

  Specific SMART targets for the department to achieve their aims
• What are financial strategies?

  Long-term/medium-term plans, devised at a senior management level, designed to achieve objectives
• What are financial tactics?

  Short-term financial measures adopted to meet the needs of a short-term threat or opportunity
• If a business is unable to pay its debts it is known as what?

  Insolvent
• What is the difference between cash and profit?

  Cash refers to the actual money a company has on hand, while profit is the amount of money a company earns after deducting expenses from revenue.
• Even profitable businesses can fail because of poor cash flow and an inability to pay their short-term debts and firms with low profit may still survive with reasonable cash flow.
• What are the most common revenue objectives?

  • Revenue growth (percentage or value)
  • Sales maximisation
  • Market share
• What is cost minimisation?

  Achieve the most cost-effective way of delivering goods and services to the required level of quality
• What are the key benefits of effective cost minimisation?

  • Lower unit costs
  • Higher gross profit margin
  • Higher operating profits
  • Improved cash flow
  • Higher return on investment
• What are possible cash flow objectives?

  • Minimise interest costs
  • Reduce amounts held in inventories or owed by customers
  • Reduce seasonal swings in cash flows
• How to calculate return on investment?

  ROI = (Operating profit)/(Captial invested) x 100
• What are the internal influences on financial objectives?

  • Managers attitudes to risk and finance
  • Owner's views
  • Type of product sold
  • Operational issues e.g. stock levels needed, investment required in assets and technology
• What are the external influences on financial objectives?

  • Economic conditions
  • Competitors
  • Political factors e.g. legislation and rax
• What are reasons for setting financial objectives?

  • Allows firms to improve efficiency and performance in the future by analysing the reasons for success or failure in different areas e.g. variance analysis
  • Act as a focus for decision-making and effort
  • Improve co-ordination of staff
• What are the different examples that can be included in financial objectives?

  • Return on investment
  • Capital structure
  • Revenue
  • Costs
  • Profit
  • Cash flow
• ROI is a measure of a firm’s profitability and performance