SETTIN G FINANCIAL OBJECTIVES

ENABLES MANAGERS / OWNERS JUDGE PERFORMANCE

NEW ESTABLISHED BUSINESS VULNERABLE / RUN OUT CASH - SETTING AVOID PITFALL IN CASH FLOW

JUDGED AMOUNT PROFIT

LEVEL PROFIT ACHIEVED IMPACTS OTHER ASPECTS

IDENTIFY ASPECTS CUASING PROBLEMS EARLY

MOTIVATING

REVENUE - TOTAL COSTS

SURVIVE WITHOUT SHORT TERM

NEED LONG RUN

SATISFY OWNERS - INVESTING MONEY WANT RETURN

RELATE TIMINGS OF PAYMENTS

IMPORTANT SHORT TERM - PAYMENT WITH CREDIT

JUST BECAUSE BUSINESS PROFIT - DOESNT MEAN CASH

INCOME RECIEVED FROM SALES MINUS COSTS GOODS & SERVICES SOLD

BORAD INDICATION FINANCIAL PERFORMANCE

DOESNT TAKE INDIRECT COSTS OR OVERHEADS CONSIDERATION

FINANCAL SURPLUS ARISING BUSNIESS NORMAL TRADING ACTIVITIES BEFORE TAX

EXCLUDES PROFIT ANY JOINT VENTURE OR NON TRADING ACTIVITIES

DOESNT INCLUDE UNEXPECTED COSTS

MEASURE THE BUSINESS PROFITS TAKES ACCOUNT WIDER RANGE EXPENDITURES AND INCOMES 

MANAGERS DECIDE UTILISE PROFIT YEAR

MAY PAY OWNERS OR REINVEST

CERTAIN AMOUNT REVENUE OVER FINANCIAL PERIOD

MORE WIDELY BUSINESS AIM GROW

PRODUCT SHORT LIFE CYCLE OPT MAX SELLING OPPURTUNITIES

CAN BE BASED REDUCE PRICES INCREASE SALES

INELASTIC - INCREASING PRICES SMALL CUSTOMERS STOP BUYING

DOESNT ALWAYS INCREASE PROFIT

PRICE WAR COMPETITIORS - WINNER IS CUSTOMER

REDUCING COSTS WITHIN TIME PERIOD

MANTAIN CURRENT PROFITS - ESPECIALLY IF STRUGGLING

STRUGGLING SUPERMARKET - REDUCE COSTS / ACCEPT LOWER PROFITS

MINIMISING COSTS MANAGERES OFFER LOW PRICES - GOOD VALUE CUSTOMER 

IMPLICATIONS MANAGEMENT / OTHER FUNCTIONAL AREAS -  AIM OPERATE MINIMAL EXPENDITURE

SAMPLE FIGURE: BASED PROFITS GENERATED PREVIOUS, TAKE EXPECTED CHANGES INTO ACCOUNT

AS % INCREASED IN PROFITS - YEARLY TAKE REPRESENTING CERTAIN % RISE ON PREVIOUS YEAR

AS % COMPARED TO SALES - PROFIT MARGIN, ALLOWS COMPANY REVENUE CHANGE - PROFIT MUST ALTER IN LINE

SIMPLE UNDERSTAND / MEASURE & MOTIVALE EMPLOYEES

RISKY / UNEXPECTED CHANGE RECORDING PROFITS LOWER FORECAST - DAMAGING SHOWS PUBLIC UNDER PERFORMANCE, RESULT FALLING SHARE PRICES BANKS NOT LEND MONEY 

VITAL / ESSENTIAL ELEMENT OF SUCCESS

CASH CYCLE - TIME ELAPSES OUTFLOW CASH TO PAY LABOUR / RAW MATERIALS FOR PRODUCTS & RECIEPT OF CASH FROM SALE OF PRODUCT

BANKS REQUIRE STEADY INFLOW ENGAGE LENDING

ESTABLISH OBJECTIVES TERM CASH FLOW INCLUDE GROWING & NEED REGULAR INFLOWS FINANCE PURHCASING

FAILURE SET = PROBLEMS RUN SHORT OF CASH

INVESTMENT ENTAIL PURCHASE ASSETS REMAIN BUSINESS LONG TERM

SEEK ACHIEVE CERTAIN LEVEL SUPPORT WIDER GROWTH

LOWERING CAPITAL EXPENDITURE REDUCE AMOUNT BORROWED IF DEBTS TO HIGH

MANAGER DIVERT FUNDS PAYING LOANS - REDUCE INTEREST

EASIER RASE IF:

• NOT BORROWED EXCESS AMOUNTS - REASSURE PAY BACK
• NON CURRENT ASSET RETAIN VALUE - SOLD IF NEED REPAY
• SELL ADDITIONAL SHARES TO RAISE FUND

EXPRESSED ANNUAL REUTRN FORM OPERATING PROFIT AS % AMOUNT INVESTED

RETURN = OPERATING PROFIT X 100 / CAPITAL INVESTED

INVESTMENTS LONG TERM PROJECTS TOO SIMPLISTIC MAKE JUDGEMENT SINGLE YEAR

ALTERNATIVE USES CAPITAL CONCERNED

FINANCIAL OBJECTIVES LONG TERM EXCEED ALTERNATIVES TAKING INTO ACCOUNT RISK

IMPORTANT SHORT & LONG RUN

MANAGERS OPT BORROW FUNDS LOND PEIOD - COMMIT PAYING INTEREST TILL REPPAYED

CHOOSE SELL SHARES - PAY DIVIDENDS NEW SHAREHOLDERS IF PROFIT

SELL TO MANY = LOSS CONTROL

OVER 50% BORROWED = HIGH GEAR = RISK INTERST RATES

COST BORROWING - LOW INTEREST BORROWING CHEAP - ENCOURAGE COMPANIES PURUSE CAPITAL HIGHER PROPORTIONS OF LOAN CAPITAL COMPARED WHEN HIGH

INFLATION - COMPANIES OPT CAPITAL STRUCTURE HIGH PROPORTION BORROWING - VALUE MONEY FALLING

PROSPERUS TIMES - INCOME RISING - COMPANY OPT OUT DUE HIGH INTEREST RATES

MOST IMPORTANT

ASSIST ACHIEVING CORPORATE OBJECTIVES

OBJECTIVES SET FIRST FOLLOWED FUNCTIONAL OBJECTIVES DESIGNED COMPLIMENT CORPORATE

REDUCING COSTS ASSIST MAX PROFITS

TYPE PRODUCT MAJOR INFLUENCE

LONG CASH CYCLES - SET CASH FLOW MAIN FOCUS

ELASTIC IMPLEMENT FINACNIAL OBJECTIVES RELATED COSTS

LARGE NUMBER SHARES - PROFIT OBJECTIVE

MANAGERS SEEK RECOGNITION ACCOMPANIES SUCCESFUL ACHIEVEMENT CORPORATE OBJECTIVE

FINANCIAL ACHIEVING SUBSTANTIAL INCREASE

UNLIKELY IGNORE ACTIONS COMPETITORS

E.G. RETAIL HIGHLY COMPETITIVE - INCREASE LEVELS INVESTMENT PROVIDE NEW IMPROVED STORES

BUSINESS STRUGGLE LOANS

HARD RASING CAPITAL - FOCUS POINT

PROFT REASSURE SHAREHOLDERS - PROVIDE SOURCE CAPITAL / FUTURE INVESTMENTS

STATE ECONOMY - CONSUMER SPENDING

OPREATE TECHNOLOGY CHANGE RAPIDLY - INFLUENCE OBJECTIVES

INCREASE NUMBER CHECKOUTS REDUCE NUMBER SALES ASSISTANTS

POLITICAL & LEGAL CHARGES CONSIDERABLE IMPLICATIONS FINANCIAL PEFORMANCE OF BUSINESS

EXPANSION EU RESULT HIGH LEVELS IMMIGRATION

CREATED SUPPLY CHEAP LABOUR - CONTROL CASH MORE EFFECTIVLEY