Financial Goals 

Maximise Profits:

Profit maximisation is achieved through maximising the difference between total revenue (from sales) flowing into the business and the total expenditure (operating costs, wages) that are flowing out - see Income Statement. 

There are THREE main ways to maximise profitability:

• Gain higher revenue (raise prices and sell same amount; lower prices and sell heaps more—smaller margin but more sales)

• Lower input costs (COGS) by finding cheaper suppliers of material used 

• Lower costs of operations—fixed and variable costs

Higher profits lead to higher returns for shareholders and overall business growth. 

Increase Market Share:

Market share refers to the percentage of total sales in an industry captured by a single firm. For large firms, small gains in market share can translate into large impacts on overall performance. This financial goal focuses upon revenue (relative to competitors).

Capturing market share is dependent upon the counter-actions of competitors (also seeking to gain market share and profitability). 

Firms can increase market share by:

• Promotion: increasing loyalty of existing customers and convincing new customers

• Customer service: by providing exceptional service, customers will return

Maximise Growth:

Growth refers to the total amount of revenue received by the business. In order to grow, a business must make significant investment in new assets and capabilities.

Maximising growth in the long-term requires the short-term sacrifice of profitability; owners usually reinvest any profits back into the firm.

Growth can occur internally or externally:

• Internally: employing more people, introducing new products, opening more outlets, expanding factory production, purchasing new equipment.

• Externally: instead of doing the hard work itself, a firm seeking growth can simply buy other firms (capturing their revenues and adding them to their own). Merging or acquiring other businesses brings challenges (fitting cultures) and requires the business pay a premium (a higher price) for the acquisition.

Improve Share Price:

Shares in public companies fluctuate in value. Investors buy shares in the hope that their value will increase. There are two ways to make money as an investor in shares of businesses.

• Capital gain: the investor can sell their shares at a higher price that which they paid for them, making a profit.

• Dividend: shareholders are entitled to a part of the company’s profit (if the board decides to redistribute profits).

A firm’s share price will continue to rise if the firm is perceived to have greater future value. 

If investors believe the value of the company (the amount of revenue and profits to be made), will increase, they will purchase shares, bidding the price higher. If perceptions change for the worse, share prices will fall.