3.5.1

Question 1

what are 4 reasons why financial objectives are important?

Answer 1

1. poor financial management can lead to failure
2. it is easier to manage because of numerical aspect
3. financial measures the success of all functional areas
4. financial measures identify reasons for investment

Question 2

what is the difference between profit and cash flow?

Answer 2

profit is measured over a period of time

cash flow considers the timing of payments and receipts

Question 3

what is the profit hierarchy?

Answer 3

revenue
gross profit
operational profit
profit of the year

Question 4

how does revenue become gross profit?

Answer 4

direct costs like materials are taken away from the revenue.

Question 5

how does profit become operational profit?

Answer 5

indirect costs like salaries are taken away from the profit

Question 6

how does profit become profit of the year?

Answer 6

other incomes and taxation are taken into account.

profit of the year can also be called net profit.

Question 7

what are 3 uses of cost objectives?

Answer 7

1. improve efficiency
2. help in a recession
3. compete on price

Question 8

what are 3 uses of revenue objectives?

Answer 8

1. help them grow
2. identify best products
3. suitable for non-profit organisations

Question 9

what are 2 uses of profit objectives?

Answer 9

1. performance indicates

2. assist stakeholders

Question 10

what is a reason for using cash flow objectives?

Answer 10

1. to ensure that they will be able to pay bills

Question 11

what are 2 uses of investment and return objectives?

Answer 11

1. increase investment for growth

2. reduce investment to reduce debts

Question 12

what is capital structure?

Answer 12

a balance between loan capital and capital generated from selling shares.

Question 13

what are three internal influences on financial objectives?

Answer 13

1. corporate objectives
2. nature of product
3. other functions

Question 14

what are three external influences on financial objectives?

Answer 14

1. environment competitiveness
2. economic environment
3. technological environment

Question 15

how can corporate objectives influence financial objectives?

Answer 15

it is where all functional objectives flow from

Question 16

how can the nature of the product influence financial objectives?

Answer 16

the length of the life-cycle can determine amount of revenue

Question 17

how can other functions influence financial objectives?

Answer 17

other functional objectives may link to the financial objectives

Question 18

how can competitiveness of the market influence financial objectives?

Answer 18

may need to se objectives to allow them to compete

Question 19

how can the economy influence financial objectives?

Answer 19

e.g. if the market is shrinking, the ma set lower profit objectives

Question 20

how can technology influence financial objectives?

Answer 20

can change costs and investment strategy