Unit 5.1- Setting financial objectives Flashcards

1
Q

What is a financial objective?

A

Financial objectives can be described as goals or targets that relate to the business’s financial objectives.

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2
Q

What are the two types of cost objectives?

A
  • Cost minimisation

- Reducing costs to maintain profit margins

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3
Q

What are profit objectives?

A

Can relate to previous years and any expected changes in the future

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4
Q

Why may it be easier to raise capital for investment?

A
  • The business hasn’t borrowed excessive amounts already
  • The business is purchasing non current assets
  • The business is a company and sell additional shares to raise funds
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5
Q

How to work out return on investment?

A

operating profit/capital invested x 100

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6
Q

Name the two types of decisions made by managers in relation to the business’s capital structure ?

A
  • Borrow funds - pay interest

- They can choose to sell shares - pay more dividends, lose control

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7
Q

What affects capital structure objectives?

A
  • Interest rates
  • Inflation
  • Income
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8
Q

What does highly geared mean?

A

More than 50% of the companies capital is borrowed

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9
Q

What are internal influences on financial objectives?

A
  • Overall business objective - financial objective must assist the business in achieving its overall or corporate objectives such as growth
  • Nature of product - determined by cash flow cycles or price sensitivity
  • Senior managers - if they hold shares then they may look at profit objectives or they may seek recognition that accompanies successful achievement of growth
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10
Q

What are external influences on financial objectives?

A

Competitive environment - actions of competitors
Economic environment - implications for consumer spending and borrowing
Technological environment - rapidly changing technology
Political and legal environment

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