Unit 3.2 Understanding financial objectives

Syllabus Candidates should be able to: define financial objectives assess internal and external influences on financial objectives (cash flow targets, cost minimisation, ROCE targets and shareholders’ returns)

Financial objectives Financial objectives are the m_________ g____ a firm sets itself in a given time period, often a financial year. E.g. They provide a t_____ to aim for and a way of m_________ performance.

Cash flow and cash flow target Cash flow refers to A cash flow target is a financial o________ focused on maintaining a healthy cash balance.

Cost minimisation and capital employed Cost minimisation is the process by which businesses attempt to m_________ profits by keeping costs l____. Capital employed refers to the total amount of money invested in a business. It consists of capital from selling shares and money from long term loans.

ROCE (return on capital employed) ROCE (Return on capital employed) targets are a measure of the return achieved by a business. They measure the efficiency of a firm by comparing operating profits with the capital employed by a business. Firms will want to achieve a certain %, at least above the current interest rate.

Shareholders’ returns Shareholders’ returns are the financial rewards to a shareholder in return for their investment; this can include d________ and increased s_____ value. They are often considered the most important financial objective. Why?

Internal influences Internal influences on financial objectives include:

External influences External influences on financial objectives include: