CHAPTER 2

 RELATIONSHIP OF FINANCIAL OBJECTIVES TO ORGANIZATIONAL OBJECTIVES

LEARNING OBJECTIVES:

1. Discuss the importance of objective setting in a business enterprise

2. Describe the primary financial objectives of a business firm

3. Explain the responsibilities of Finance Manager to achieve the firm’s financial objectives

4. Understand the nature of environmental (“green”) policies and their implications for the
management of the economy and firm

GOALS- are the broad primary outcomes towards which effort and actions are directed in a business.
They are whats, not hows and a business might have multiple goals to achieve.
OBJECTIVES-are measurable steps an organization takes to achieve its goals.

An objective of a business is an outcome which allows a business to achieve its GOALS

Objectives should be SMART:

• Specific

• Measurable

• Agreed

• Realistic

• Time specific

IMPORTANCE OF SETTING OBJECTIVES:

 To provide greater direction

 To provide unity

 To provide motivated force

 To aid control and future action

ORGANIZATIONAL OBJECTIVE- are short-term and medium-term goals that an organization seeks to
accomplish. An organization's objectives will play a large part in developing organizational policies
and determining the allocation of organizational resources.
FINANCIAL OBJECTIVE- An objective set by a company in which the target state is measured in
monetary terms, such as a certain amount of profits, or a certain percentage increase in profits over a
period of time.

“Objectives are end results of planned activity” Objectives are categorized into :-

 Strategic objectives

 Financial objectives

STRATEGIC OBJECTIVES

Focused on improving Long-term Competitive Business Position

FINANCIAL OBJECTIVES

• Outcomes focused on improving Financial Performance

• Financial objectives are the targets a business sets itself for its financial performance
STRATEGIC FINANCIAL MANAGEMENT

 Strategic planning is long-range in scope and has its focus on the organization as a whole.

 Strategic financial planning involves financial planning, financial forecasting, provision of

finance and formulation of finance policies which should lead the firm’s survival and success.

 The responsibility of finance manager is to provide a basis and information for strategic
positioning of the firm in the industry.

SHORT-TERM AND LONG-TERM FINANCIAL OBJECTIVES OF A BUSINESS ORGANIZATION

Two main objectives of financial management

 1. Profit Maximization

2. Wealth Maximization

THE WEALTH MAXIMIZATION GOAL IS ADVOCATED ON THE FOLLOWING GROUNDS:

 It considers the risk and time value of money

 It considers all future cash flow, dividends and earnings per share

 It suggests the regular and consistent dividend payments to the shareholders

SHORT AND MEDIUM-TERM:

 Maximization of return on-capital employed or return on investment

 Minimization of finance charges

 Efficient procurement and utilization of short-term, medium-term and long-term funds

LONG-TERM:

 Growth in the market value of the equity shares through maximization of the firm’s market
share and sustained growth in dividend to shareholders.

 Survival and sustained growth of the firm

RESPONSIBILITIES TO ACHIEVE THE FINANCIAL OBJECTIVES

INVESTMENT

 The finance manager is responsible for determining how scarce resources funds are
committed to projects.

 The ff areas are examples of investing decisions of a financial manager:

 • Evaluation and selection of capital investment proposal

• Prioritization of investment alternatives

• Funds allocation and its rationing

• Assets replacement decisions

• Purchase or lease decision

FINANCING

 The finance manager is concerned with the ways in which the firm obtain s and manages the
financing it needs to support its investments.

 The finance manager will be involved in the ff finance decisions:

• Determination of the financing pattern of short-term, medium-term, and long-term

funds requirements.

• Determination of the best capital structure or mixture of debt and equity financing

• Evaluation of alternative sources of funds

OPERATING

 The finance manager concerns working capital management.

 Some issues that may have to be resolved in relation to managing a firm’s working capital
are:

• The level of cash securities and inventory that should be kept on hand

• The credit policy

• Sources of short-term financing

• Financing purchase of goods

ENVIRONMENTAL “GREEN” POLICIES AND THEIR IMPLICATIONS

 Private property rights can promote prosperity and cooperation at the same time protect the
environment.

 The government regulation is an alternative method of protecting the environment.

 When it is difficult to assign and enforce private property rights markets often result in
outcomes that are inefficient.
CONCLUSION

 Business requires both financial and strategic objectives but ,

 Whatever may be the situation , Select the objectives based on the present performance of
organization and do accordingly

FINANCIAL
MANAGEMENT
CHAPTER 2
 Relationship of financial objectives to
organizational strategy and other
organizational objectives

SUBMITTED TO: PROFESOR MARIBEL G. OGANIA CPA, MBA