Financial Objectives of An Entrepreneurial Firm - Profitability Liquidity Efficiency And Stability

Financial Objectives Of New Firms / Ventures / Businesses / Entrepreneurs | Why A Company / Corporation / An Organization Needs Financial Objectives?

Here, we discuss about four types of main Financial Objectives of an entrepreneurial firm. These are Profitability, Liquidity, Efficiency And Stability.

Why A Company Needs Financial Objectives? Simply to survive and stabilize long-term business from financial resources in order to get profits in the form benefits provided to the whole society with the use efficient resources.

For The Success of a Business, both Newbie and already established firms must have four main objectives to survive and compete in the market place. We deal with these terms in the bellow paragraph.

•  Profitability

It is the ability of the Entrepreneur to gain profits out of total expenses incurred for the purpose of earning revenue so that revenue exceeds the expenses and ultimately, company earn profit.

Profit = Revenues - Expenses

If the revenues are equal to the profits, then the entrepreneurial firm runs in a Break Even Point which means that the firm neither earns profit nor loss and revenues are equal to expenses. Mostly start-up firms run in loss but with the time, these firms try their level best to gain profitability position of the business.

The key to success to gain Profitability position depends upon many factors like Learning, Experiments, Training and Skill Development, Innovation, Consistency, Past Experiences and many other factors.

So, An Entrepreneur must gain this position to survive and compete with the already established larger companies in the market place.

For Example, An IT firm earns profit of Rs.2.5 Million during the current year is in a good profitability position.

• Liquidity

It shows the capacity and ability of the company to meet its daily expenses. An Entrepreneurial Firm must provide Working Capital for the smooth running of the business. A firm must have sufficient amount of Cash in Hand to run the business.

For meeting running expenses, an Entrepreneurial firm must need to collect the amount due from the customers for the goods or services sold. Also, the company must try to increase its sales in order to sell its unsold goods as soon as possible.

For Example, A company which has sufficient amount of capital, let say Rs.700000 to run the business of finished goods like selling Stationary items, then the company has good Liquidity Position in the market.

• Efficiency

Efficiency means how efficiently a firm utilizes its resources (Assets) to produce maximum output (Revenues) at minimum cost (Expenses). If the company produces quality products or provide quality services to its customers at reasonable price, then we can say that the firm is efficient.

For Example, when we Telecom Companies provide variety of packages at reasonable price to facilitate the customers, then it is the efficiency of the company.

• Stability

Stability means that the entrepreneurial firm can sustain and compete in the market place for the long period of time. For getting this position, a company must have a balance between Profitability and Liquidity and also maintain a check on its Equity to stabilize it business.

For Example, if a company that has good position in both profitability and liquidity but there is no check and balance on its internal and external sources of finance and the firm gets finance from shareholders and  takes lots of loans from Banks and other larger Financial Institutions, then it is not better for the stability of the business. As, in this case, running of the business mainly depends on the Shareholders’ Equity and loans from the lenders  and other outside parties. So, in the result, the company has to repay the loan in time and company has not enough cash to meet its daily expenses in future and ultimately lose its profitability position as well.

So, an Entrepreneurial Firm must have Profitability, Liquidity, Efficiency and Stability Position to gain success and become market leader in the market place.