Short and Long Term Objectives

Business decisions will have impacts on short term objectives AND long term objectives. Look at the following scenarios:

• FGX is aiming to maximise short-term profitability by lifting prices. How might this impact longer term growth objectives?

Raising prices will increase profit margin per sale. However, it is not likely to result in increased market share and growth of overall revenue in the long term as the higher prices will likely deter some price sensitive consumers from buying from FGX.

• DFE aims to lift long-term profitability by using debt to expand its operations. How is this related to growth and solvency and what impact will this have on both

Expanding the business' operation by buying more factories will likely result in growth of revenue and market share in their industry. However, funding this expansion using debt will reduce the business' solvency position as it is now relying more upon debt / gearing. This increases the longer-term risks for the firm. if the strategy works, the Return on Equity will be high due to the relatively higher use of debt than owner's equity.

• PPO wants to use its cash resources to buy improved technology. Explain how this will impact liquidity, efficiency and profitability.

The purchase of technology using cash resources will diminish the firm's liquidity as it will now have less cash on hand to meet other obligations as they fall due. The newer technology is likely to result in a reduction in operational expenses, perhaps by lifting productivity or reducing the need for labour resources. This increased efficiency through lower costs and the likely lift in productivity (more output) by using the new technology will likely result in higher profitability in the long term.

There could be any number of scenarios you could be required to comment upon in terms of the short and long term implications. The development of this skill comes from the exploration of hypothetical and actual business examples.