Finanical Strategies and Accounts

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  • Financial Strategies and Accounts
    • Objectives are the targets pursued by a business, while the strategy is the medium to long term plan to achieve these objectives
    • Corporate objectives and strategies relate to the entire businesss, whereas function objectives relate to finance, markerting or other functional areas
    • Businesses pursue a range of financial strategies including cash flow targets, cost minimisation, ROCE targets and shareholders returns
    • Financial objectives can be influenced by internal and external factors. Examples include the businesses corporate objectives and the actions of the rivals
    • Balance sheets and income statements are vital finanical documents. Balance sheets record a business's assets and liabilities. Working capital and depreciation are important features of balance sheets
    • Income statements record the profit or loss made over a trading period
    • Ratio analysis compares two pieces of accounting data and can be used by a range of stakeholders
    • Ratios can be used to assess a businesses profitability, financial efficiency, liquidity and shareholders returns
    • Ratio analysis allows informed judgements to be made. It has significant limitations - effects of inflation change and it ignores non finanical issues
    • A financial strategy is a medium to long term plan designed to achieve the objectives of a business' finance function
    • Financial strategies include, raising finance, implementhing profit centres, cost minimisation and allocating capital expenditure
    • There are 3 major techniques of investment appraisal - payback, average rate of return and net present value
    • Payback measures investment decisions in relation to time, while ARR considers profitability. Net present value takes both of these factors into account
    • Investment decisions are frequently subject to uncertainty and therefore risky
    • Investment decisions are subject to a number of qualitative influences, including the businesses objectives, corporate image, relations with the workforce and the amount of risk the business is willingf to accept.

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