Chapter 2

CHAPTER 2                      UNDERSTANDING THE FINANCIAL OBJECTIVES

Types of financial objective

Cash-flow targets:

ü  Maintain a minimum closing monthly cash balance

ü  Reducing the bank overdraft by a certain amount by the end of the year

ü  Creating a more even spread of sales revenue

ü  Spreading its costs more evenly

ü  Achieving a certain level of liquid, non-cash items

ü  Raising certain levels of cash at a particular point in time

ü  Setting contingency fund levels

Cost minimisation

A business that reduces its costs can benefit in two ways:

o   Keep price the same and have higher profit margins

o   Reduce the price so that can attract more customers

Examples of cost minimisation objectives include:

ü  Achieving a certain cost reduction in the purchase of raw materials

ü  Reducing wage costs per unit

ü  Lowering wastage levels

ü  …