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Understanding Financial Objectives

Understanding Financial Objectives. 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?.

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Understanding Financial Objectives

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  1. Understanding Financial Objectives

  2. Objectives Different Types of Financial objectives Reasons for Setting Financial objectives Internal and External influences on Financial objectives

  3. Why are the financial objectives crucial to companies successfully achieving their corporate objective?

  4. Types of Financial 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.

  5. If you don’t have some of the following add them to your list. • Spread costs more evenly • More even spread of sales revenue • Maintain a minimum monthly closing balance

  6. Types of Financial Objective • (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.

  7. Examples • 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)

  8. ROCE Targets • Return on Capital Employed. • A measure of the value of resources used by a business. • ROCE (%) = operating profit Capital employed x 100

  9. ROCE targets may typically be: • Exceeding previous years ROCE • Exceeding a competitors ROCE

  10. Other financial objectives • Shareholder targets – i.e. Raising share prices or dividends • Sales maximisation • Individual project objectives • Financial management targets (low variances)

  11. Reasons for setting financial objectives • Act as a focus for decision making and effort • Provides a benchmark for success or failure • Gives a common purpose • Focuses on efficiency

  12. Internal and External Influences on financial objectives • List 3 internal and external influences on ASDA increasing sales by 20% from the previous year

  13. Internal Influences on financial objectives • Corporate objectives – Is there Synergy? • Finance – Are Funds available? • HR – Are workforce able? • Operational – Scope for extension strategies? (mobile technology)

  14. External Influences • (mnemonic) • P • E • S • T • L • E

  15. Review of Objectives • Different Types of Financial objectives • Reasons for Setting Financial objectives • Internal and External influences on Financial objectives

  16. Task • A2 Book Chp 2 Questions p. 18

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