5.1.1 Flashcards
What are financial objectives?
Financial objectives are the monetary targets a business wants to achieve within a set period of time
Examples of financial objectives?
Return on investment Capital structure Revenue Costs Profit Cash flow
What is ROI?
Return on investment-ROI is a measure of a firm’s profitability and performance
Return investment calculation
Operating profit / x 100
Capital invested
Example: Capital invested = £100 000 Operating profit = £8 000 £8 000/£100 000 x 100 = 8% This means that for every £1.00 invested in the business £0.08 was generated in profit in that year
What is long term funding
Long term funding is the amount of capital that has been invested in a business and will stay in the business for over a year. This is normally for the purchase of assets
where can long-term funding come from?
Long term funding can come from 2 sources:
Equity i.e. capital invested by the shareholders of a company
Debt i.e. money borrowed from financial institutions
Calculation of gearing?
Calculated as:
Deb/t x 100
Total long term funding
Example:
Long term funding = £3.2m
Debt = £1.2m
£1.2m/£3.2m x 100 = 37.5%
Revenue objectives
Revenue objectives are targets set for the amount of money coming into a business from sales in a set period of time
Gross profit calculation
sales revenue - cost of sales
Operating profit calculation
gross profit - expenses
Profit for the year calcualtion
operating profit-interest and taxation
Define cash flow
Cash flow is the movement of money into and out of a business
Cash flow objectives?
May be a specific cash flow target ,example:
To ensure all debts are received within 30 days
To maintain a cash balance of £25,000
A cash flow target may be to keep a surplus in order to take advantage of unforeseen opportunities
Internal influences on financial objectives?
Factors from within the business
Corporate and other functional objectives
Characteristics of the firm
Relationship between owners and directors
Public or private sector
external influences
Factors from outside the business Competitors Consumers Economic conditions External environment
