Objectives of Business Finance, Business Economics & Finance | Business Economics & Finance - B Com PDF Download

Setting goals and objectives is vital for any entrepreneur overseeing a new, growing company. Business owners set different types of objectives, including financial objectives, to give them a solid plan for moving in the direction of long-term success. Common financial business objectives include increasing revenue, increasing profit margins, retrenching in times of hardship and earning a return on investment.

Revenue Growth

Increasing revenue is the most basic and fundamental financial objective of any business. Revenue growth comes from an emphasis on sales and marketing activities, and is solely concerned with increasing top-line earnings – earnings before expenses. Companies often set revenue goals in terms of percentage increases rather than aiming for specific dollar amounts. An entrepreneur may set an objective of increasing revenue by 20 percent each year for the first five years of a new company's operations, for example.

Profit Margins

Profit objectives are a bit more sophisticated than revenue growth goals. Any money left over from sales revenue after all expenses have been paid is considered profit. Profit, or bottom-line earnings, can be used in a number of ways, including investing it back into the business for expansion and distributing it among employees in a profit-sharing arrangement.

Profit goals are concerned first with revenue, then with costs. Keeping costs low by finding and building relationships with reliable suppliers, designing operations with an eye toward lean efficiency and taking advantage of economies of scale, to name a few methods, can leave you with more money after paying all of your bills.

Sustainability

At certain times, companies or brands may be primarily concerned with basic economic survival. Retrenching is a marketing technique – based on a financial objective – that attempts to keep a brand alive and keep current revenue and profit levels from falling any further during the “decline” stage of the product/brand life cycle.

Companies may be concerned with financial sustainability during periods of economic turmoil, as well. Common financial objectives for survival include collecting on all outstanding debts on time and in full, de-leveraging by paying off debt and keeping income levels consistent.

Return on Investment

Return on Investment is a financial ratio applied to capital expenditures. ROI can be applied to two basic scenarios. First, ROI is concerned with the return generated by investments in real property and productive equipment. Business owners want to make sure that the buildings, machinery and other equipment they buy generates sufficient revenue and profit to justify the purchase cost.

Secondly, ROI applies to investments in stocks, bonds and other investment instruments. The same principle applies to these investments, but there is generally no physical, productive asset used to generate a return. Instead, ROI for investment products is calculated by comparing the dividends, interest and capital gains realized from investments by the cost of the investment and the opportunity cost of forgoing alternative investments.