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What are the financial objectives required in an organization?

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What are the financial objectives required in an organization?

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  • 04/02/2019

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Financial objectives are very important for the success of an organization. Effective business plan may include the financial objectives. These objectives are in the form of –

a)      To maximize profits – The most important financial objective of every organization is to increase the profits. In the business, managers measure their profit levels in the terms of Gross Profit and Net Profit. Gross profit can be calculated by subtracting the direct cost from the total cost of the product and Net Profit can be calculated by dividing the total revenue from the net income.  

b)     To eliminate Debt – In order to reduce debt, a business may focus on revenues, delay expansion and decreases expenses with the unstable financial markets. It pays dividend and interest on their loans to their stockholders to reduce the cost and debt.

c)      To increase the sale – Another financial objective that required in every organization is to increase sales. The business organization considers the cash flows through pricing and sales strategy for lowering the overhead expenses.

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Different financial objectives of every organization are –

a)      To protect the wealth of the organization – A business can protect their wealth by focusing on the revenues and managing different assets such as- capital equipment, intellectual property and real estate. A business may increase their whole value of the business by operating the Investment with Private or Venture capital.  

b)     To increase profits –Generally, it is the most widely used financial objective in the organization. The operations of the business can be improved by increasing the profits. The Improvement in the market share of the business leads to maximize the profits.

c)      To exercise management discretion – Every small business exercise their management discretion by achieving the sales revenue and by choosing the tradeoff accountability to creditors. To meet the financial objective of the business, a firm can match their measurement by flexibility and liquidity.

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The targets of an organization that can be measured in monetary terms in known as Financial targets. These goals directly impact the financial statements such as balance sheet and income statement. The financial objectives of an organization are –

a)      Revenue – Revenue of an organization is termed as Growth rate. Net revenue can be reinvested in the business and also distributed to different investors as Dividends.

b)     Return on Investment (ROI) – It is a common financial objective that measure the strategies, projects, programs and other investment criteria of an organization. ROI also measures loss or gain generated by investment.

c)      Earnings before Interest and Taxes (EBITA) – EBITA is a common target that focuses to increase the overall financial performance of the business. It always measures the earning of an organization before the deduction of any debts, taxes, expenditures and interest on loans.

d)     Return on Capital – ROCE is the profitability ratio which measures the return on capital employed by the business. It also measures the investments are generated by stockholders and bondholders.

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