Understanding Financial Objectives
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Transcript Understanding Financial Objectives
Different Types of Financial objectives
Reasons for Setting Financial objectives
Internal and External influences on Financial
objectives
Why are the financial objectives
crucial to companies successfully
achieving their corporate
objective?
(1) Cash-flow targets:
As we know poor cash-flow management is
the biggest cause of business failure.
Task
Try to think of 3 potential cash-flow targets
that a business may attempt.
Spread costs more evenly
More even spread of sales revenue
Maintain a minimum monthly closing balance
(2) Cost Minimisation
Minimising costs can benefit businesses in a
number of ways:
Increased profitability without changing
prices
Reduce prices without affecting profit per unit
levels. May also increase the number of sales
made.
Negotiating reduced prices for raw materials.
Reducing wage costs per unit. (this can be
done by increasing productivity)
Reducing wastage/defective goods
Relocating to a cheaper location
Introducing new technology (this will reduce
the VC)
Return on Capital Employed.
A measure of the value of resources used by
a business.
ROCE (%) = operating profit
Capital employed
x 100
ROCE targets may typically be:
Exceeding previous years ROCE
Exceeding a competitors ROCE
Shareholder targets – i.e. Raising share prices
or dividends
Sales maximisation
Individual project objectives
Financial management targets (low variances)
Act as a focus for decision making and effort
Provides a benchmark for success or failure
Gives a common purpose
Focuses on efficiency
List 3 internal and external
influences on ASDA increasing
sales by 20% from the previous
year
Corporate objectives – Is there Synergy?
Finance – Are Funds available?
HR – Are workforce able?
Operational – Scope for extension
strategies? (mobile technology)
(mnemonic)
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Different Types of Financial objectives
Reasons for Setting Financial objectives
Internal and External influences on Financial
objectives
A2 Book Chp 2 Questions p. 18