5.1 Setting Financial Objectives Flashcards
What do revenue objectives aim to do?
Increase value or volume.
What do cost objectives aim to do?
Minimise/control costs.
Define cash flow objectives.
A target of a minimum cash balance or to evenly spread incomes and payments.
Define profit objectives.
A target or % increase from previous years profit.
What are return on investment objectives?
A target value of the return on investment %.
Define capital structure objectives.
A debt to equity ratio.
Target to reduce proportion of debt.
Reduce or increase capital expenditure.
Define equity.
Money raised from selling shares.
Define capital expenditure.
Spending money on fixed assets.
Name the 3 internal influences on setting objectives.
Other objectives.
Shareholders.
Finance.
Name 2 external influences on setting objectives.
Economy.
Competitors.
Define cash.
The instant access to money to use.
Define profit.
Money made from sales after costs have been deducted.
Why is profit different from cash?
Due to credit not all sales are received in the month of purchase.
What is gross profit?
Profit made once the firms direct costs have been paid.
What is operating profit?
Profit made directly from trading (minus fixed costs).
What is net profit/for the year?
Profit made after all costs are paid.
Why do businesses set finance objectives?
Help business achieve overall cooperate objectives.
Act as a focus for decision making.
Improve coordination within and across teams.
How do you calculate turn on investment?
(Return/cost) x100
How do cash flow and profit compare?
Cash flow is money flowing in and out of business calculated at the exact time it enters or leaves whilst profit includes any transactions now and in the future (liabilities).
