SETTIN G FINANCIAL OBJECTIVES
BENEFITS SETTING 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
PROFIT
REVENUE - TOTAL COSTS
SURVIVE WITHOUT SHORT TERM
NEED LONG RUN
SATISFY OWNERS - INVESTING MONEY WANT RETURN
CASH FLOW
RELATE TIMINGS OF PAYMENTS
IMPORTANT SHORT TERM - PAYMENT WITH CREDIT
JUST BECAUSE BUSINESS PROFIT - DOESNT MEAN CASH
GROSS PROFIT
INCOME RECIEVED FROM SALES MINUS COSTS GOODS & SERVICES SOLD
BORAD INDICATION FINANCIAL PERFORMANCE
DOESNT TAKE INDIRECT COSTS OR OVERHEADS CONSIDERATION
OPERATING PROFIT
FINANCAL SURPLUS ARISING BUSNIESS NORMAL TRADING ACTIVITIES BEFORE TAX
EXCLUDES PROFIT ANY JOINT VENTURE OR NON TRADING ACTIVITIES
DOESNT INCLUDE UNEXPECTED COSTS
PROFIT FOR THE YEAR
MEASURE THE BUSINESS PROFITS TAKES ACCOUNT WIDER RANGE EXPENDITURES AND INCOMES
MANAGERS DECIDE UTILISE PROFIT YEAR
MAY PAY OWNERS OR REINVEST
REVENUE OBJECTIVES
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
COST OBJECTIVES
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
PROFIT OBJECTIVES
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
CASH FLOW OBJECTIVES
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
SETTING OBJECTIVES FOR LEVEL OF INVESTMENT
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
SETTING OBJECTIVES FOR RETURNS
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
CAPITAL STRUCTURE OBJECTIVES
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
INFLUENCES
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
INTERNAL FACTOR: OVERALL OBJECTIVES OF BUSINESS
MOST IMPORTANT
ASSIST ACHIEVING CORPORATE OBJECTIVES
OBJECTIVES SET FIRST FOLLOWED FUNCTIONAL OBJECTIVES DESIGNED COMPLIMENT CORPORATE
REDUCING COSTS ASSIST MAX PROFITS
INTERNAL FACTOR: NATURE PRODUCT SOLD
TYPE PRODUCT MAJOR INFLUENCE
LONG CASH CYCLES - SET CASH FLOW MAIN FOCUS
ELASTIC IMPLEMENT FINACNIAL OBJECTIVES RELATED COSTS
INTERNAL FACTOR: OBJECTIVES BUSINESS SENIOR MANAGE
LARGE NUMBER SHARES - PROFIT OBJECTIVE
MANAGERS SEEK RECOGNITION ACCOMPANIES SUCCESFUL ACHIEVEMENT CORPORATE OBJECTIVE
FINANCIAL ACHIEVING SUBSTANTIAL INCREASE
EXTERNAL FACTOR: COMPETITIVE ENVIRONMENT
UNLIKELY IGNORE ACTIONS COMPETITORS
E.G. RETAIL HIGHLY COMPETITIVE - INCREASE LEVELS INVESTMENT PROVIDE NEW IMPROVED STORES
EXTRNAL FACTOR: ECONOMIC ENVIRONMENT
BUSINESS STRUGGLE LOANS
HARD RASING CAPITAL - FOCUS POINT
PROFT REASSURE SHAREHOLDERS - PROVIDE SOURCE CAPITAL / FUTURE INVESTMENTS
STATE ECONOMY - CONSUMER SPENDING
EXTERNAL FACTOR: TECHNOLOGICAL ENVIRONMENT
OPREATE TECHNOLOGY CHANGE RAPIDLY - INFLUENCE OBJECTIVES
INCREASE NUMBER CHECKOUTS REDUCE NUMBER SALES ASSISTANTS
EXTERNAL FACTORS: POLITICAL & LEGAL ENVIRONMENT
POLITICAL & LEGAL CHARGES CONSIDERABLE IMPLICATIONS FINANCIAL PEFORMANCE OF BUSINESS
EXPANSION EU RESULT HIGH LEVELS IMMIGRATION
CREATED SUPPLY CHEAP LABOUR - CONTROL CASH MORE EFFECTIVLEY
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