5 - Financial Objectives Flashcards
What Are The Financial Objectives?
(5 Points)
~ Return on investment (ROI).
~ Revenue.
~ Costs.
~ Profit.
~ Cashflow.
Describe Revenue, Costs & Profit As A Financial Objective
(3 Points)
~ Profit -> Maximise profit, by increasing the value of sales.
~ Revenue -> Maximise sales, by increasing volume of sales.
~ Cost -> Minimise costs, to improve profits.
Describe Cash Flow As A Financial Objective
(2 Points)
~ Increase liquidity.
~ To prevent cash flow problems.
Describe ROI As A Financial Objective
(2 Points)
~ Measure of a firms profitability and performance.
~ Expressed as a %, the higher the + number the better.
What Is The Formula For ROI?
Return On Investment / Cost Of Investment x 100
What Does A Higher + Figure Of ROI, Highlight For A Business?
(2 Points)
~ Highlights strong capital management and greater efficiency.
~ Useful for internal or external comparisons.
What Are Drawbacks Of ROI?
(2 Points)
~ Isn’t adjusted for time, could look at ARR.
~ Doesn’t take into account any qualitative factors.
What Are The Different Forms Of Profit?
(3 Points)
~ Gross profit.
~ Operating profit.
~ Profit for the year.
What Is Gross Profit?
Difference between a business’s revenue and the cost of goods sold.
How Is Gross Profit Calculated?
Sales Revenue - Cost Of Sales
What Is Operating Profit?
Profit a business makes from its normal activities, after subtracting cost of sales and operating expenses.
How Is Operating Profit Calculated?
Cost Of Sales - Operating Expenses
How Is Profit For The Year Calculated?
Operating Profit + Other Profit - Net Finance Costs - Tax
What Is The Distinction Between Cash Flow & Profit?
(2 Points)
~ Cash Flow = Money in and out of the business.
~ Profit = Money left after costs are taken from revenue.
