Accounting and Financial Objectives

Question 1

What is one of the main financial objectives for a new business?

Answer 1

To break even

Question 2

What is a key financial objective relating to PLCs?

Answer 2

To ensure there are sufficient shareholder returns and to ensure the share price is rising

Question 3

How might a profitability objective be measured?

Answer 3

Through ROCE; the ability to turn revenue into profit

Question 4

Which financial objective is common of most businesses?

Answer 4

Reducing and optimising costs

Question 5

How might a liquidity objective be measured?

Answer 5

Through the acid test ratio

Question 6

What factors influence accounting and financial objectives?

Answer 6

Internal and external factors: HR, Ops, Marketing and McSteeple

Question 7

Why might gearing be a financial objective?

Answer 7

In order to reduce or increase a firm’s dependency on debt

Question 8

What is the most important concept concerning accounting and financial objectives?

Answer 8

That they align with the other functional areas and link with the overall corporate objectives

Question 9

Why is it important to have a financial objective concerning cash flow or liquidity?

Answer 9

Because cash is the blood of the business so it is just as an important focus as profitability

Question 10

Why is it important to focus on shareholder returns as a financial objective?

Answer 10

Because the shareholders own the business so it is important to satisfy them in order to prevent them from selling their shares leading to vulnerability to takeover

Question 11

How is shareholder return measured?

Answer 11

The market value of the share itself and the dividend they are paid

Question 12

Why is it in the interest of directors to look after shareholders?

Answer 12

Because they have the power to appoint new directors

Question 13

What are examples of financial objectives that a business could set concerning ROCE and profitability?

Answer 13

• To achieve a higher ROCE than the previous year
• To achieve a greater ROCE than the national average
• To achieve a ROCE that is comparable to competitors

Question 14

What are examples of liquidity financial objectives?

Answer 14

• Maintaining a minimum closing cash balance
• Creating a more even spread of sales revenue
• Spreading costs more evenly
• Raising certain amounts of cash at a particular time

Question 15

What are examples of financial objectives concerning cost minimisation/optimisation?

Answer 15

• Reducing costs but keeping the price the same to yield greater profit margins
• Reducing price while cutting costs to attract more customers

Question 16

Why are financial objectives set?

Answer 16

• To provide direction and coordination
• To forecast budgets
• To motivate staff and monitor their performance
• To monitor business performance - useful for shareholders, suppliers and banks

Question 17

What are the internal influences on financial objectives?

Answer 17

The type of the business, corporate objectives and objectives of other departments