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

Targets

Cash Flow Targets (cash inflows and outflows. E.g.

Growing business

Cost Minimisation(Seeking to reduce all costs)

ROCE (percentage of profit generated by

capital)

Shareholders(increasing shareholders

returns)

Internal and External Influences on Financial Objectives

• Brainstorm in groups the internal and external factors which influence a businesses’ financial objectives.

Internal

A

BC

External

A

BC

Internal Influences on Financial Objectives

Internal

Corporate Objectives of the Business

Nature of the Product/Service Sold

(if product is price elastic managers may

pursue objective of cost minimisation).

Attitudes and Aspirations of Managers (if

managers hold shares, then

pursuing shareholders

interest may be a more attractive

objective for them!)

External Influences on Financial Objectives

External

Actions of the Businesses’ Competitors

Availability of External Finance (if a

business is experiencing

difficulty in raising capital then financial objectives may focus

on profits)

Market Conditions (if

market is expanding may focus objectives on shareholder

returns or higher ROCE figures)

Economic Climate

Shareholders & Managers

• Split into groups – shareholders and managers of ASDA.

• Decide on 4 objectives you wish to be achieved by ASDAas either a mangeror a shareholder.

Conflict Between Objectives

Profit Maximisation & Dividends

Shareholders

Salaries, working conditions, job security, sales and employment

Managers

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?