Relationship of Financial Objectives to

Organizational Strategy and Other

Organizational Objectives

Chapter 2
Objective Setting
• Objective
– A specific result that a person or system
aims to achieve within a time frame and
with available resources. In
general, objectives are more specific and
easier to measure than
goals. Objectives are basic tools that
underlie all planning and strategic activities.
May be stated in broad terms as:
• It is the goal of the company to be a leader in
technology in the industry.

• To achieve profits through a high level of

manufacturing efficiency.

• To achieve a high degree of customer

satisfaction.
• Objectives are usually in
quantitative terms and are set
within time frame.
Strategic Financial Management
• Based on an objective and
comprehensive assessment of the
present situation of the organization and
setting up the to be achieved in the
context of an intelligent and
knowledgeable anticipation of the
environment.
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.
Strategic Financial Planning
• Should enable the firm to judicious
allocation of funds, capitalization of
relative strengths, mitigation of
weaknesses, counter possible actions
of the competitor and the like
activities.
 Short- Term and Long-Term Financial
Objectives of Business Organization
• Short and Medium- Term
– Maximization of return on capital employed or
return on investment.
– Growth in earnings per share and price/earnings
ratio through maximization of net income or
profit.
– 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 firms market share
and sustained growth in dividend to shareholders.

– Survival and sustained growth of the firm.

Wealth maximization
• Considers the risk and time value of money.
• Considers all future cash flow, dividends and
earnings per share.
• Suggests the regular and consistent dividend
payment to the shareholders.
• Financial Decisions are taken with a view to
improve the capital appreciation of the share price.
• Maximization of firms value is reflected in the
market price of share.