Setting financial objectives
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
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
