AQA A Level Business 3.5 - Decision Making to Improve Financial Performance

3.5 – Decision Making to Improve Financial Performance


Financial Objectives

Financial objectives:
 Cost minimisation
 Profit targets
 ROCE targets
 Shareholder returns
 Cash flow targets




Influences on financial objectives:


Internal: External:

 Size of the business  MEDICC
 Leadership style – Autocratic may  PESTLE-C
obsess over cutting costs
 Projected profits / revenue
 Cashflow forecast




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, 3.5 – Decision Making to Improve Financial Performance


Cash Flow

Cash flow – The movement of money in and out of a business over a period of time
 Cash flow considers the timing of this, as businesses may be profitable but also need
to have enough cash at all times


Examples of cash flow objectives:
 Ideal gearing ratio
 Minimise interest costs
 Keep consistent cash flow all year
 Reduce payables and receivables


Cash flow forecast – A projection of money moving in and out of a business
 Used to prepare for shortfalls (cash deficits)


Problems with poor cash flow:
 Unable to pay current liabilities – Poor liquidity
 Less likely to get good loan and overdraft deals from banks


How to improve cash flow:
 Choose correct sources of finance (short-term, long-term, internal, external)
 Have an accurate cash flow forecast
 Meet cash flow objectives


Working capital – The cash needed to pay for day-to-day activities




Capital Structure
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