Financial Objectives
A2 Business Studies
Aims and Objectives
Aim:
• To understand financial objectives.
Objectives:
• Define financial objectives
• Explain the internal and external influences on financial
objectives.
• Analyse the internal and external influences on financial
objectives.
• Evaluate the trade off between shareholder and employee
satisfaction.
Starter
Q) Define a financial objective
Goal or target set and/or pursued by the finance
department or function. Usually be SMART.
Financial Objectives
Cash Flow Targets (cash
inflows and outflows. E.g.
Growing business
Shareholders
(increasing shareholders
returns)
Targets
ROCE (percentage of
profit generated by
capital)
Cost Minimisation
(Seeking to reduce all costs)
Internal and External Influences on
Financial Objectives
• Brainstorm in groups the internal and external
factors which influence a businesses’ financial
objectives.
C
A
A
Internal
External
B
C
B
Internal Influences on Financial
Objectives
Corporate Objectives
of the Business
Attitudes and
Aspirations of
Managers (if
managers hold
shares, then
pursuing
shareholders
interest may be a
more attractive
objective for them!)
Internal
Nature of the
Product/Service Sold
(if product is price
elastic managers may
pursue objective of
cost minimisation).
External Influences on Financial
Objectives
Actions of the
Businesses’ Competitors
Market
Conditions (if
market is
expanding may
focus objectives
on shareholder
returns or higher
ROCE figures)
External
Economic Climate
Availability of
External Finance (if a
business is
experiencing
difficulty in raising
capital then financial
objectives may focus
on profits)
Shareholders & Managers
• Split into groups – shareholders and managers
of ASDA.
• Decide on 4 objectives you wish to be
achieved by ASDA
as either a manger
or a shareholder.
Conflict Between Objectives
Shareholders
Managers
Profit Maximisation & Dividends
Salaries, working conditions, job
security, sales and employment
Divorce of Ownership & Control
Shareholders
• Interested in profit
maximisation and
dividends.
• Only interested in managers
making profits.
Managers
• Incentivised by money.
• Bonuses/performance
related pay.
• May seek market size in
terms of output,
employment and sales
rather than profitability.
However, managers want to signal to shareholders that they
are performing well and so chose not to profit maximise but
to profit satisfice (just enough to satisfy shareholders).
Employee or Shareholder Satisfaction?
• Briefly explain how
internal influences
affected the financial
objectives of Optical
Excellent PLC.
• How might external
influences have affected
the workers attitudes
towards their pay?