Understanding financial objectives

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What is a Financial Objective?
Target set for the financial department of a business
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What is Cash Flow?
The money flowing in and out of a business
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What types of organisation have cash flow as the main objective?
A Bank
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Cost Minimisation
Aims to reduce all costs of production that a business incurs - Wages, Wastage, variables
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Return on Capital Employed (ROCE) is
Measure of the value of resources used by a business as a %
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What does it mean if a business set a ROCE target as 25%
It's net profit for the financial year will be 25% of the capital employed in the business
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What does it mean by; 'Shareholder's returns'?
Combination of short - term returns and future share prices and dividends
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Internal influences on financial objectives are...
A) The corporate objectives of the business B) The nature of the product that is sold C) Attitudes and aspirations of the business's senior managers
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A) The corporate objectives of the business
A fiancial objective is used by a business to achieve corporate objectives
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B) The nature of the product sold
E.G. - If a product is sensitive to price (elastic) managers will be more inclined to pursure cost minimisation as a financial objective
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C) The attitudes and aspirations of managers of business
If managers hold a lot of shares then increasing the shareholders value might be a good objective
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External influences on financial objectives are...
A) The actions of the business's competitors B) The avaliability of external finances C) The state of the market
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A) The actions of the business's competitors
Can't ignore competitors when setting financial objectives
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B) The avaliability of external finances
If a business have trouble raising capital then objectives are more likely to be on profitability
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C) The state of the market
If the market for product is expanding = more likely to set expansive financial objective - higher shareholders returns. ETC
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External factors are classified in PESTLE
P-political, E-economic, S-social, T-technological, L-legal, E-environmental
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Other financial objectives include...
Maximum sales, liquidity and gearing targets
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Other cards in this set

Card 2

Front

What is Cash Flow?

Back

The money flowing in and out of a business

Card 3

Front

What types of organisation have cash flow as the main objective?

Back

Preview of the front of card 3

Card 4

Front

Cost Minimisation

Back

Preview of the front of card 4

Card 5

Front

Return on Capital Employed (ROCE) is

Back

Preview of the front of card 5
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