SETTIN G FINANCIAL OBJECTIVES

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  • Created by: _Holly98
  • Created on: 04-04-16 13:45

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

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PROFIT

REVENUE - TOTAL COSTS

SURVIVE WITHOUT SHORT TERM

NEED LONG RUN

SATISFY OWNERS - INVESTING MONEY WANT RETURN

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CASH FLOW

RELATE TIMINGS OF PAYMENTS

IMPORTANT SHORT TERM - PAYMENT WITH CREDIT

JUST BECAUSE BUSINESS PROFIT - DOESNT MEAN CASH

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GROSS PROFIT

INCOME RECIEVED FROM SALES MINUS COSTS GOODS & SERVICES SOLD

BORAD INDICATION FINANCIAL PERFORMANCE

DOESNT TAKE INDIRECT COSTS OR OVERHEADS CONSIDERATION

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OPERATING PROFIT

FINANCAL SURPLUS ARISING BUSNIESS NORMAL TRADING ACTIVITIES BEFORE TAX

EXCLUDES PROFIT ANY JOINT VENTURE OR NON TRADING ACTIVITIES

DOESNT INCLUDE UNEXPECTED COSTS

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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

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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

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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

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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 

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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

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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
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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

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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

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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

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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

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INTERNAL FACTOR: NATURE PRODUCT SOLD

TYPE PRODUCT MAJOR INFLUENCE

LONG CASH CYCLES - SET CASH FLOW MAIN FOCUS

ELASTIC IMPLEMENT FINACNIAL OBJECTIVES RELATED COSTS

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INTERNAL FACTOR: OBJECTIVES BUSINESS SENIOR MANAGE

LARGE NUMBER SHARES - PROFIT OBJECTIVE

MANAGERS SEEK RECOGNITION ACCOMPANIES SUCCESFUL ACHIEVEMENT CORPORATE OBJECTIVE

FINANCIAL ACHIEVING SUBSTANTIAL INCREASE

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EXTERNAL FACTOR: COMPETITIVE ENVIRONMENT

UNLIKELY IGNORE ACTIONS COMPETITORS

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

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EXTRNAL FACTOR: ECONOMIC ENVIRONMENT

BUSINESS STRUGGLE LOANS

HARD RASING CAPITAL - FOCUS POINT

PROFT REASSURE SHAREHOLDERS - PROVIDE SOURCE CAPITAL / FUTURE INVESTMENTS

STATE ECONOMY - CONSUMER SPENDING

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EXTERNAL FACTOR: TECHNOLOGICAL ENVIRONMENT

OPREATE TECHNOLOGY CHANGE RAPIDLY - INFLUENCE OBJECTIVES

INCREASE NUMBER CHECKOUTS REDUCE NUMBER SALES ASSISTANTS

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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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