
Different Types of Financial objectives

Reasons for Setting Financial objectives

Internal and External influences on Financial
objectives
Why are the financial objectives
crucial to companies successfully
achieving their corporate
objective?




(1) Cash-flow targets:
As we know poor cash-flow management is
the biggest cause of business failure.
Task
Try to think of 3 potential cash-flow targets
that a business may attempt.

Spread costs more evenly

More even spread of sales revenue

Maintain a minimum monthly closing balance




(2) Cost Minimisation
Minimising costs can benefit businesses in a
number of ways:
Increased profitability without changing
prices
Reduce prices without affecting profit per unit
levels. May also increase the number of sales
made.





Negotiating reduced prices for raw materials.
Reducing wage costs per unit. (this can be
done by increasing productivity)
Reducing wastage/defective goods
Relocating to a cheaper location
Introducing new technology (this will reduce
the VC)

Return on Capital Employed.
A measure of the value of resources used by
a business.

ROCE (%) = operating profit

Capital employed
x 100



ROCE targets may typically be:
Exceeding previous years ROCE
Exceeding a competitors ROCE

Shareholder targets – i.e. Raising share prices
or dividends

Sales maximisation

Individual project objectives

Financial management targets (low variances)

Act as a focus for decision making and effort

Provides a benchmark for success or failure

Gives a common purpose

Focuses on efficiency

List 3 internal and external
influences on ASDA increasing
sales by 20% from the previous
year

Corporate objectives – Is there Synergy?

Finance – Are Funds available?

HR – Are workforce able?

Operational – Scope for extension
strategies? (mobile technology)







(mnemonic)
P
E
S
T
L
E

Different Types of Financial objectives

Reasons for Setting Financial objectives

Internal and External influences on Financial
objectives

A2 Book Chp 2 Questions p. 18