Functional Objectives and Strategies

Should the arrows be pointing in the other direction? Why?

Ryanair:

Corporate objective:

Ryanair’s objective is to maximise shareholder value throughfirmly establishing itself as Europe’s leading low-fares scheduled passenger airline through continued improvements and expanded offerings of its low-fare service.

 

Ryanair aims to offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.

 

How could this influence the functional strategies within Ryanair?

 

In the BUSS3 Exam it is very important to highlight the corporate objective stated in the case study.

 

 

Click on the picture above. What was the corporate objective for Superstyle plc?

 

 

What strategies might each funtional area have to develop to reach this objective?

 

 

Nice video on setting corporate objectives:

 

Understanding Financial Objectives

Financial Objectives should include:

Cash flow targets
What happens when a business runs out of cash?

Cost minimisation

Think about ways to minimise costs.
Think about possible consequences of reducing costs.

Return on Capital Employed (ROCE) targets
Formula:

    Operating Profit x 100

Total equity+non-current liabilities

 

It is important that you understand what this means.

How can you judge if ROCE is poor, satisfactory or good?

Shareholder returns
Formula 1:
Dividend per share (in pence)

Total dividends

Number of issued ordinary shares

 

 

Formula 2:
Dividend yield (%)

Ordinary share dividend (in pence)  x 100

Current market price (in pence)

 

It is important that you understand what this means.

How can you judge if the dividend yield is poor, satisfactory or good?

 

 

Assessing internal and external influences on financial objectives: Can you add to this?





Using Financial Data to Measure and Assess Performance

Analysing Balance Sheets

Analysing Income Statements

A plc would publish these financial statements in its Annual Report which would be sent to all shareholders. Click on the picture.

 

 

 

In the BUSS3 exam you may be given a simplified set of accounts. Click on the picture to return to Superstyle plc.

 



 

In the exam they may ask you compare two sets of figures, make comparisons over time or identify trends.

You will be expected to identify strengths and weaknesses from the published accounts.

They may want you to use the figures to justify a business decision.

You will be using ratio analysis to help with this.

You also need to be aware of Working Capital.
This is the day-to-day finance for running a business.
Formula:
Current assets minus current liabilities.

You need to know the consequences of having too little or too much working capital.



Depreciation.
The value of some fixed assets will decline over time.

Profit utilisation.
What the directors decide to do with any profits made.

Profit quality.
This is the likelihood of a profit source continuing into the future.

Interpreting Published Accounts

Conducting Ratio Analysis

Liquidity
1. Current Ratio
2. Acid Test Ratio

Profitability
1. Gross Profit Margin (from BUSS2)
2. Net Profit Margin (from BUSS2)
2. Return on Capital Employed

Financial Efficiency
1. Asset Turnover
2. Stock Turnover
3. Creditor Days
4. Debtor Days

Gearing

Shareholder Ratios
1. Dividend per Share
2. Dividend Yield

 

Assessing the value and limitations of ratio analysis. Details here.

Selecting Financial Strategies

Raising Finance

Bank loans
Debentures - details here.
Selling assets
Sale & leaseback
A 'Rights Issue' - details here.

You need to be familiar with the advantages and disadvantages of each method.

Implementing Profit Centres



Cost Minimisation



What are the possible consequences of these cuts?

Allocating Capital Expenditure
This will depend  on corporate objectives and market conditions.

Making Investment Decisions

Conducting Investment Appraisal

Quantitative techniques include:
Payback,  average rate of return and net present value.

 

You also need to know about qualitative influences on investment decisions. Do you know what this means?

Understanding Marketing Objectives

Marketing Objectives- the goals of the marketing function which come from and are designed to help achieve the corporate objectives.

 

 

Marketing objectives may include:

 



1. To maintain or increase market share.

2. To target a new market segment of an existing market or develop a new market.

3.To develop new goods and services as a result of market research findings or technological developments.



Whatever the marketing objectives are, they should always be quantifiable targets so that success can be judged.

What is the SMART objective for this organisation? Click on the picture below.

 

Internal Factors influencing the setting of marketing objectives

• Corporate objectives
• Finance

Worth the money? Click here.

• Human resources
• Operational issues

External Factors influencing the setting of marketing objectives

• Competitor actions
• Technological developments
• Economic change

Stretch & Challenge. Read this chapter.