Fichas
3.5.1: Setting financial objectives
Fichas del conjunto (17)
- 1Financial Objective:a goal or target to be pursued by the finance department
-they must be SMART as they are objectives
-they provide focus for other decision-making and effort
-used to motivate staff
-can be used to measure the success/failure of the department - 2Typical Financial Objectives:-Revenue objectives
-Cost objectives
-Profit objectives
-Cash-flow objectives
-Investment/capital expenditure objectives
-Return on investment objectives (ROCE)
-Capital structure objectives
-Satisfying shareholders objectives - 3Revenue Objectives:(sales growth by value/volume and sales maximisation) by better promotion, changing prices (link to marketing)
- 4Cost Objectives:(cost minimisation) by reducing waste, fixed/variable costs etc. (link to operations)
- 5Profit Objectives:(profit growth/maximisation) by chargin higher prices, increasing sales or minimising costs
- 6Cash-Flow Objectives:by minimising outflows, improving inflows, improving liquidity etc.
- 7Investment/Capital Expenditure Objectives:(level of spending) through machinery or expansion/growth
- 8Return on Investment Objectives:(compares profit with the size of the business)
-improve last years ROCE, better than average in industry, better than rivals
*ROCE (%) = operating profit / capital employed) x 100 - 9Capital Structure Objectives:(how a firm finances its overall operations/growth by usiong different sources of funds)
Gearing: the percentage of capital invested into the firm that has come from loans
*Gearing (%) = NCL / (NCL + TE) x 100
(above 50% is high, below 25% is low) - 10Cash Flow:the total amount of cash flowing into the business (inflows), minus cash leaving the business (outflows) over a period of time
- 11Cash Inflows:cash flowing into the business e.g. from customers sales, loans taken out, rent charged, selling assets
- 12Cash Outflows:cash flowing out of the business e.g. paying for supplies, purchase of other goods/equipment, repaying loans and interest
- 13Difference Between Cash and Profit:cash is the actual money held that the business can use whereas profit is the final result at the end of a financial period
*Profit = revenue - costs - 14Reasons a Business Appears Profitable but Has Poor Cash Flow/Liquidity:-makes sales to customers of credit (sale counts immediately as revenue but becomes a cash inflow when it is actually received)
-payments for goods from suppliers (show as a cost immediately but wont be an outflow until it is paid for)
-stock (an asset for the business but means cash is tied up)
-payment for non-current assets (will be an outflow but not show as a cost on the income statement) - 15Cash and Profit:a firm must make profit to be viable but must have good cash flow to be able to pay its debts and avoid being forced into bankruptcy or liquidation.
Cash flow may be important in the short term if times are hard but ultimately, long term profit is important - 16Liquidity:a firms ability to cover their current liabilities (debts) with their current assets
- 17Influences On Financial Objective Decisions: (Internal/External)Internal:
-managers attitudes to risk and finance
-owners views
-human resource issues e.g. staff skills
-nature of product
-legal structure of business
-operational issues (stock levels needed, investment needed etc.)
-resources available
External:
-state of the economy
-inflation/interest rates
-political factors
-technology performance
-suppliers
-customers needs/expectations
Información
- Descripción
- A level (3.5: Decision making to improve financial performance) Business Studies Fichas sobre 3.5.1: Setting financial objectives, creado por Ashleigh-Jade Jones el 24/05/2017.
- Creado por
- Ashleigh-Jade Jones · may 2017
- Actualizado
- 31 may 2017
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- 26
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