Financial & Non-Financial Corporate Objectives - Lesson | (2024)

Financial Objectives

The overall objective of many organizations is to make a profit because profits are passed on to shareholders or owners, which is called maximizing shareholder wealth. Organization executives decide each year how much profit is reinvested in the company and how much is paid out to shareholders in the form of dividends. If the company is successful and the share price is increasing, then this will also be beneficial for shareholders, as the value of their investment in the company will have increased.

Besides shareholders, other stakeholders may have different interests, such as suppliers getting paid on time, banks getting the interest on loans or employees looking for competitive salaries and a decent range of benefits; however, high salaries or interest payments to banks will cut into profits, reducing dividends. Since companies want to satisfy as many stakeholders as possible, the reality of this main financial objective is 'to maximize profit while addressing the needs of other stakeholders.'

Non-Financial Objectives

The examples of non-financial objectives we saw earlier often involve extra costs, whether it's about improving technology or customer services, these activities cost money, and so, reduce profits.

Organizations cannot survive by focusing solely on profit. Without, for example, good quality products or services, customers will buy less and profits will drop. Thus, strategic objectives should also involve areas such as the welfare of employees, quality products and after-sales service, and the needs and preferences of other stakeholders.

Corporate responsibility today also includes society and is called corporate social responsibility. This involves such issues as minimizing pollution or damage to the local environment, as well as examining the effects of the company's activities on communities. Thus, strategic objectives often cover three areas: profit, people and planet. This is referred to as the triple bottom line. Although the focus may well continue to be on profits as a priority, it is understood that by developing strategic objectives for all three of these areas, the company will be much stronger, with better relationships with governments, suppliers and employees, as well as maintaining a good general reputation overall. There are other benefits to focusing on non-financial objectives. Let's have a look at a few examples:

Employee Satisfaction

By aiming to improve employee satisfaction, absenteeism and staff turnover will decrease - reducing the cost of using temporary staff or overtime, as well as lowering recruitment and selection costs. After all, no one wants to work for an Ebenezer Scrooge that is concerned about counting the money, but not the employees.

Customer Satisfaction

Improving customer satisfaction or ensuring a quality product and after-sales service will cost money in training staff and improving operations; however, this will increase customer loyalty and attract new customers to the product, which will increase sales and revenue and - providing costs are controlled - profits.

Corporate Social Responsibility

To take care of the planet aspect of the triple bottom line, money will need to be invested to reduce pollution and monitor processes and effects on communities; however, the resulting increased positive view of the company will result in increased business and stronger relationships with the community. The value of the company will also increase, not only with share prices but due to the goodwill increasing. Goodwill involves the reputation of a business and is listed as a quantifiable asset in the balance sheet. In other words, a better reputation means a higher value for the company financially; the goodwill figure is even included as part of its value when it is sold.

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Financial & Non-Financial Corporate Objectives - Lesson | (2024)


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