3.5.1

Question 1

what does financial objectives mean?

Answer 1

outlines a clear target for the finance function of a business to work towards over the medium to long-term

Question 2

what are the main types of financial objectives?

Answer 2

• revenue
• profit
• cost
• cash flow
• investment
• capital structure

Question 3

what are the benefits of financial objectives?

Answer 3

• allow managers to compare actual financial performance against targets and competitors
• enable managers to identify potential problem areas of the business e.g. low sales
• can provide a key source of motivation for staff in terms of working towards clear targets

Question 4

what does cash mean?

Answer 4

without sufficient flow if cash into the business it will fail and die
- used to finance the day to day financial operations of a business such as payment of wages + bills -> known as working capital

Question 5

what does cash flow mean?

Answer 5

the total amount of money being transferred in and out if a business

Question 6

what does profit mean?

Answer 6

money left after paying for business expenses
- businesses can survive without it
- essential for long-term growth

Question 7

what are cash flow forecasts?

Answer 7

tools used to more accurately identify the timing of cash inflows and outflows

Question 8

what is the drawback to cash flow forecasts?

Answer 8

heavily rely on accurate data

Question 9

what are the different measures of profit?

Answer 9

• gross profit
• operating profit
• profit for the year

Question 10

what does gross profit mean?

Answer 10

measure if profit earned from buying and selling goods

Question 11

how to calculate gross profit?

Answer 11

sales revenue - cost of sales

Question 12

what does operating profit mean?

Answer 12

the difference between gross profit and overheads

Question 13

what does overheads mean?

Answer 13

known as indirect costs and relate to all aspects of a businesses activities that are associated with regular trade

Question 14

how to calculate operating profit?

Answer 14

gross profit - operating expenses

Question 16

what does profit for the year mean?

Answer 16

what remains after all costs have been deducted
- includes any additional sources if revenue and expenditure from both trading and non-trading activities

Question 18

how to calculate profit for the year?

Answer 18

operating profit + profit from other activities - net finance costs - tax