Financial Objectives Flashcards
What are financial objectives?
Financial goals that a business wants to achieve.
What do businesses have in mind?
Targets and a specific time period
Who sets the financial objectives?
Financial managers
What must the financial objectives be consistent with?
The functional objectives
What can financial objectives improve?
Coordination between teams, Act as a focus for decision making and for investments.
Why do businesses look at their financial data?
To assess their financial position.
Why are revenue objectives set?
To increase the value or volume of sales
Why are costs objectives set?
To minimise costs
What will increase if costs are reduced?
Increase in overall profits
Why are profit objectives set?
To set a target figure for profit
What is cash flow?
Money flowing into and out of the business over a period of time
What is profit?
All transactions in and out
What could happen if a business allows payments to be made on credit?
Could damage their cash flow.
What happens if a business produces too much?
They will have to pay suppliers and staff so much - overtrading
Why are cash flow objectives put in place?
To help prevent cash flow problems
What do ROI objectives help for a business?
To stay profitable
How to calculate ROI?
Return on investment divided by cost of investment X100
What does ROI measure?
How efficient an investment is
What is capital?
Simply wealth in the form of money owned by a business.
What is capital expenditure?
The money spent to buy fixed assets.
Why may businesses set investment objectives?
To help achieve a set amount of capital expenditure during a year
What is capital structure?
The way a business raises capital to purchase assets
What is a common capital structure?
To set a debt to equity ratio
What are 3 internal factors influencing financial objectives?
the overall objectives of the business
The status of the business
Other areas of the business
What are 3 external factors influencing financial objectives?
Competitors
Economy
Environmental influences
