5 - Financial Objectives

Question 1

What Are The 6 Financial Objectives?

Answer 1

~ Return on investment (ROI).

~ Capital structure (Gearing / Long term funding that is debt).

~ Revenue.

~ Costs.

~ Profit.

~ Cash flow.

Question 2

What Is ROI?

Answer 2

Is a measure of a firms profitability and performance.

Question 3

What Is The Formula For ROI?

Answer 3

Operating Profit / Capital Invested x 100

Question 4

What Are ROI Targets Set As & Why?
(3 Points)

Answer 4

~ %.

~ To benchmark two industry standard.

~ For internal benchmarking.

Question 5

What Does ROI Allow For Comparisons Between?

Answer 5

Alternative investment opportunities.

Question 6

What Is Another Name For Gearing?

Answer 6

The proportion of long term funding that is debt.

Question 7

What Is Long Term Funding?
(2 Points)

Answer 7

~ Is the amount of capital that has been invested in a business and that will stay in the business for over a year.

~ A compulsory interest bearing.

Question 8

What Are The 2 Sources Long Term Funding Can Come From?

Answer 8

~ Equity.

~ Debt.

Question 9

What Is Equity?

Answer 9

Capital invested from financial institutions.

Question 10

What Is Debt?

Answer 10

Money borrowed from financial institutions.

Question 11

What Is Capital Structure?

Answer 11

Relative ways in which the capital has been raised.

Question 12

What Is A Compulsory Interest Bearing?
(2 Points)

Answer 12

~ Regardless of profits, interest repayments have to be made to financial institutions.

~ This increases the degree of risk undertaken by the business especially if interest rates start to rise.

Question 13

What Is The Formula For Gearing?

Answer 13

Debt / Total Long Term Funding x 100

Question 14

What Does It Mean When A Business Is Described As Highly Geared?

Answer 14

If the % is thought to be high as this increases the element of risk.

Question 15

What Are Revenue Objectives?

Answer 15

Targets set for the amount of money coming into a business from sales in a set period of time.

Question 16

What Are Cost Objectives?

Answer 16

Limits set for the amount of money to be spent on expenditure in a set period of time.

Question 17

What Are Profit Objectives?

Answer 17

Targets set for the amount of surplus to be achieved in a set period of time.

Question 18

What Is The Formula For Profit?

Answer 18

Revenue - Total Costs.

Question 19

What Is Sales Revenue & Its Formula?
(2 Points)

Answer 19

~ Money coming in from sales.

~ Quantity Sold x Selling Price.

Question 20

What Is Meant By Cost Of Sales?

Answer 20

Costs directly linked to the production of the goods or services sold.

Question 21

What Is The Formula For Gross Profit?

Answer 21

Sales Revenue - Cost Of Sales.

Question 22

What Are Expenses?

Answer 22

All other costs associated with the trading of the business.

Question 23

What Is The Formula For Operating Profit?

Answer 23

Gross Profit - Expenses.

Question 24

What Is The Formula For Profit For The Year?

Answer 24

Operating Profit - Interest and Tax.

Question 25

What Is Cash Flow?

Answer 25

Movement of money into and out of a business.

Question 26

What Does It Mean When The Net Effect Is Negative?

Answer 26

More money is flowing out quicker than it is flowing in then a business may face liquidity problems.