Influences on Financial Objectives

What is a financial objective?

A specific goal or target relating to the financial performance, resources and structure of a business

What are the main types of Financial Objectives?

• Revenue Objectives

• Cost Objectives

• Profit Objectives

• Cash Flow Objectives

• Investment Objectives

• Capital Structure Objectives

What are the internal influences on financial objectives?

• Business ownership: The nature of business ownership has a significant impact on financial objectives. A venture capital investor would have quite a different approach to a long-standing family ownership

• Size and status of the business: E.g. start-ups and smaller businesses tend to focus on survival, breakeven and cash flow objectives. Multifunctional or public companies are much more focused on growing sales and profits

• Other functional objectives: Almost every other functional objective in a business has a financial dimension- which often brings the finance department into conflict with other functions

What are the external influences on financial objectives?

• Economic conditions: E.g in an economic downturn many businesses change their financial objectives in favour of cost minimisation and maximising cash flow. Significant changes in interest rates and exchange rates also have the potential to threaten the achievement of financial targets like ROCE

• Competitors: The competitive environment directly affects the achievability of financial objectives. E.g. cost minimisation may become essential if a competitor can grow market share because it is more efficient

• Social and political change: Often an indirect impact. E.g legislation on environmental emissions or waste disposal may force a business to increase investment in some areas and cut costs in others