FINANCIAL ANALYSIS

Assessment of Financial Objectives



Table of Contents

Abstractiii

Acknowledgementiv

Assessment of Financial Objectives1

Introduction1

Financial Objectives in the Current Economic Scenario1

Profitability1

Liquidity2

Financial Stability2

Adjustment of Objectives for Inflation and Recession4

Investment Appraisal Methods4

Payback Period5

Average Rate of Return6

Net Present Value6

Internal Rate of Return7

Critical Analysis8

Conclusion and Recommendations9

References10

Abstract

The global world is experiencing the era of economic downturn and affects of the recession. The lagging economic indicators and uproar have exposed businesses to several risks, one of which is the financial risk. The main objective of any organisation is to generate profit for the firm and its stakeholders. These main objectives remain the primary concern for any manager, under any circumstances. However, one needs to adjust to the environment and economic scenario. It lies on the part of the financial manager to adapt to the changing business environment and adjust the strategies accordingly.

Acknowledgement

This report would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, my utmost gratitude to the financial director of or company, whose sincerity and encouragement I will never forget. He has been my inspiration throughout the research on the topic under discussion.

Assessment of Financial Objectives

Introduction

The primary objective of any financial manager is to maximise shareholder's wealth and reduce the company's cost of capital (Rosenbloom, Hallman, 2003, p.24). However, this statement has been misunderstood by many organisations. Although the main objective remains the same, but it lies on the part of the manager to adjust the financial objectives and make investment related decisions in accordance with the changing market scenario and economic movements. This report evaluates financial objectives of an organisation in the current economic climate and evaluates available investment appraisal methods. Moreover, it suggests how a small sized firm should adjust its strategies according to the current market scenario. It also proves the fact that the main aim of any organisation is to maximise share holder's wealth.

Financial Objectives in the Current Economic Scenario

The financial objectives of any firm differ on the basis of its business operations and structure. However, the primary mission and values in terms of finance remains the same. The main objectives of any organisation relates to the profitability, ability to attain liquidity in the short term and financial stability (Schuster, Northcott, 2008, p.70).

Profitability

Businesses operate for the purpose of attaining handsome profits and revenues. Organisations cannot survive if they are unable to cover their cost and secure sizeable margin on it. To ensure this objective, it is imperative that the organisation stay in touch with the industry happenings and organisational happenings. The current economic scenario demands an effective cost management system to ensure the smooth stream of profits (Vicker, 2006, p.61).

Liquidity

Businesses have obligations. They are operating on a certain proportion of debt and equity. The most important part, of which, is the short term debt. This leads the financial manager to design strategies in line with the liquidity requirements. A company qualifies as a highly liquid company if it is ...