Topic 3.5.1 - Setting financial objectives Flashcards
1
Q
The value of setting financial objectives
A
- focus for the business
- measurement of success or failure
- reduce the risk for failure
- provide transparency
- help coordinate different business functions
- key context for making investment decisions
2
Q
Types of financial objectives
A
- revenue objectives
- cost objectives
- profit objectives
- cash flow objectives
- investment objectives
- capital structure objectives
3
Q
Internal influences on financial objectives
A
- owners
- size and status of the business
- other financial objectives
4
Q
External influences on financial objectives
A
- economic conditions
- competitors
- social and political change
5
Q
Cash flow
A
The flow of cash into and out of the business
6
Q
Profit
A
Total revenue - total costs
In one period of time
7
Q
Gross profit
A
Revenue - cost of sales
8
Q
Operating profit
A
Gross profit - operating expenses
9
Q
Profit for the year
A
Operating profit + profit from other activities - net finance costs - tax
10
Q
Why are profit and cash flow different
A
- timing differences
- fixed assets accounted for differently
11
Q
Cash flow objectives
A
- reduce bank borrowings
- minimise time taken by customers who pay credit to settle outstanding invoices
- extend the period taken to pay suppliers to maximum permitted period
- building a buffer balance of cash
- minimise amount paid out in interest charges
- reducing seasonal swings in cash flow
12
Q
Objectives for investment
A
invest in research and development
- high quality
- innovation
- efficiency
13
Q
Capital structure objectives
A
- organisational structure of the business
