Financial Objectives (AQA A Level Business): Flashcards

A business focused on survival prioritises cash flow and liquidity above all else.

During a recession, businesses typically revise their financial objectives downward, focusing on maintaining cash flow, reducing borrowing and cutting costs.

False.

Public limited companies face significant pressure to deliver consistent profit growth and dividends, or their share price may fall. Private businesses have more flexibility because they do not face the same public scrutiny.

Commitments to sustainability, fair pay or ethical sourcing raise costs, so the business may accept lower short-term profit. Investors and lenders also increasingly assess businesses against ESG criteria.

A cut limits the campaigns that can be run and the channels that can be used. The team may have to rely on lower-cost digital channels, such as social media, rather than television or print.

False.

Pricing decisions determine revenue per unit and therefore profit margins. A price set too low can damage profitability even when sales volume is strong.

Sales forecasts produced by the marketing team feed directly into financial planning, including cash flow, revenue and profit targets.

Marketing wants to spend to grow, while finance wants to control costs and protect profit margins.

Holding large amounts of stock ties up cash, which is a financial problem. Holding too little risks being unable to meet customer demand, which is an operational problem.

True.

Producing more output for the same cost, or the same output at lower unit costs, improves profit margins without any change to pricing or marketing.

A tight financial position may force operations to keep using outdated equipment, reducing efficiency and increasing the risk of breakdowns.

It increases operational costs in the short term, but it reduces the cost of product recalls, customer returns and reputational damage in the long run.

It determines how many staff can be employed, what they can be paid and whether the business can afford the specialist skills it needs.

Cuts to the training and development budget can leave staff without the skills they need, reducing productivity and increasing staff turnover.

False.

Redundancies are a financially motivated decision with significant consequences for the remaining workforce's morale, workload and productivity.

Recruiting, onboarding and preparing a replacement costs significantly more than retaining an existing employee. High turnover can therefore reduce profitability.

Strikes can halt production entirely, leading to lost revenue and significant reputational damage.

A business is competitive when it can attract and retain customers more effectively than its rivals.

Efficient machinery lets a business produce at a lower cost per unit than rivals using outdated equipment. This gives it a competitive price advantage.

Investment in research and development can let a business bring new products to market ahead of rivals, gaining a first-mover advantage.

False.

A business that under-invests risks falling behind rivals who are upgrading, making it less competitive over time.

It can pass the savings on to customers through lower prices, competing on price. Alternatively, it can retain them as higher profit margins while keeping its existing prices, competing on quality or brand.

Economies of scale are cost advantages that come with producing at high volume.

Interest payments must be made regardless of trading conditions, leaving less money to invest. A heavily indebted business may be unable to respond to a rival's new product launch or price cut.

A business with low debt and healthy cash reserves can continue to invest and take market share, while heavily indebted rivals are forced to cut back.

Poor cash flow can force a business to delay investments, accept unfavourable terms from suppliers or miss market opportunities while waiting for customers to pay.

True.

A business that pays promptly and reliably is in a stronger position to negotiate better prices or favourable payment terms, which reduces costs.

It builds brand awareness and customer loyalty, making it harder for rivals to win customers away.

A business with a strong financial track record finds it easier to attract external investment from shareholders, venture capitalists or lenders.