Financial objectives and constraints

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Profit is a major objective - It is safe to say that for most businesses, high or rising profits are a major objective. Stating that they just want to increase profit is a very general objective. Most companies will be more specific in defining their financial objectives. They may look to increase gross or net profit. 

Revenue target - The directors may set an over all aim, such as to increase revenue by 10% or more. This approach will be important for a business that wants to grow. 

Cash flow targets - All businesses need to keep a healthy cash flow. So having the "right level" of cash flow is important for a firm. Too much and they are missing out on potential oppourtunites. Too little and they cannot meet their short-term liabilities. The business may set the target as keeping cash as at a percentage of turnover or a stateted amount. 

Return on capital employed (ROCE) - This is a measure of how well a firm is using its assets to vreate profit. It is calculated by taking net profit or operating profit as a percentage of capital employed. Capital employed is all the long term finance that is used to operate the business. Roce can be improved by either reducing the capital employed or by increaing net profit. 

Shareholder returns - These can be expressed in terms of the dividend payments that will be made to shareholders…


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