Financial Objectives (Part 1)
Reasons for setting financial objectives
 To act as a focus for decision
making.
 Improve efficiency, by
examining the reasons for
success and failure in
different areas.
 Provide a
yardstick against
which success or
failure can be  Improve co-ordination
measured. – i.e. giving
teams/departments a
common purpose.
 Allow shareholders to
assess whether the  Enable outside
business is going to organisations, e.g.
provide a worthwhile suppliers to confirm the
investment. financial viability of a
business.
 1. EXAMPLE CASH-FLOW TARGETS
Cash Flow is the amount of money flowing into and out of a business over time

• Try to maintain a ___________ cash flow

• Reduce the bank ___________ by 5% at the
end of the coming year
• Always have a _______ amount of £x per
month in the bank account

Choose from: cash; positive; overdraft

Note: The above is not a definitive list

 2. COST MINIMISATION
•Achieving a certain cost reduction in the purchase of raw materials

•Reducing wage costs per unit

•Lowering levels of wastage.

•Relocating the business to the ‘least-cost site.’

 
•Improving the efficiency of production by reducing variable costs
per unit. 
 3. REVENUE OBJECTIVES

 Revenue Objectives may be used by businesses……

i. Wishing to GROW; setting a challenging objective in terms of

revenue can help to achieve growth

ii. That sell products with short product life cycles, who wish to
maximise the short-term selling opportunities available

iii. That are charities, who aim to maximise the revenues they
generate, to support their chosen cause
 4. PROFIT OBJECTIVES
• These can be expressed in several different forms:
1. As a simple figure (in pounds and pence):

2. As a % increase in profit from the previous year:

3. As a % compared to sales- this is called a profit

margin; e.g. we expect to make 5% profit for
every £1 of sales
 Assessing internal and external
influences on financial objectives
• Now go to this webpage and use the
information to complete the tables below
about the various internal and external
influences upon the financial objectives set:
https://www.tutor2u.net/business/reference/in
fluences-on-financial-objectives

Complete this page as

LP for Thursday!
 Question:

Q: Is profit and positive cash flow

the same thing?

https://www.youtube.com/watch?v=VCEuxnZPABU
Cash flow and Profit are NOT the same!
• Profit occurs when Revenue (Sales/ Turnover) is greater than
Expenditure (Costs). A loss occurs when Expenditure is greater
than Revenue
• Cash Flow relates to the timings of receipts (money in) and
payments (money out)
• A profitable business can therefore still be short of cash from
time to time, due to things like them not receiving payment for
their sold goods for a while, but them still having to meet their
payments (inventory, wages etc) in the meantime
Cash flow tends to be more important in the short term, to
meet payments and avoid situations such as bankruptcy.
However in the long term, a business must make a profit to
satisfy its owners
 Question: Why is Profit important for
businesses?
Discuss

Answers?
 Different types of profit:
• We will explore these in more depth later in
the unit and course, but in brief:
Now read each of the 3 descriptions below
and match it to the corresponding type of
Gross Profit profit:

This is the profit left after all trading costs

have been taken away from revenue, in a
given period
Operating/ Net Profit
This is the profit left after sales costs have
been taken away from revenue, in a given
period
Profit for the Year
This is the profit left after all other costs/
revenues have been accounted for, in a given
period