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The Financial Perspective. Overview. The Financial Perspective is … Profitability Stability Capital Gearing Liquidity Matching Terms Asset Utilisation Practice. The Financial Perspective.

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The Financial Perspective


  • The Financial Perspective is …
  • Profitability
  • Stability
    • Capital
    • Gearing
    • Liquidity
    • Matching Terms
  • Asset Utilisation
  • Practice

The Financial Perspective

Is a systematic way of using the information in the financial statements to focus on key performance goals.


❷Stability (Cash and Capital)

❸Asset utilisation



Our first accounting equation

Sales – Expenses = Profit

Brings us neatly to the first principle of financial strategy






+++ (unlimited tactics)



+++ (unlimited tactics)


Cost Price


p81 in workbook



Maintaining Stability is about making sure that the business has enough money to pay debts when due and take advantages of opportunities for growth

Right first time!

Enough money to get the business up and running

Raising Capital


“Long to long”

Generating profits

Controlling spending

Credit control

Planning cash flow

Staying on track

Maintaining liquidity


Stability 2 – Gearing

Gearing refers to the mix of Owners’ Funds and debt used to fund the business.

Debt< Owner’ Funds is Low Gearing

Debt ≥ Owners Funds’ is High Gearing

Current Liabilities

Current Liabilities

Long Term Liabilities

Long Term Liabilities

Owners’ Funds

Owners’ Funds

A highly geared company would be exposed to more risk and would find further borrowing difficult: but in high profit low interest rates situations might be seen to be making better use of capital and more return to shareholders

Covered in detail in “Ratios”

Owners Funds

Share Capital

Retained Profits

Long Term Loans

Current Liabilities



Fixed Assets




Current Assets



Stability 3 - Matching terms

There are a few prudent guidelines in funding a business


Asset Utilisation

Assets cost money and demand capital

The principle is to keep the level of assets as low as possible without damaging target customer service levels

Fixed assets

Consider hiring rather than buying

Be realistic about capacity against likely sales

Stock control

Credit control

Current assets

Covered in detail in “Ratios”

p81 in workbook


Exercise 3

Exercise 3 – The Business Model

  • Build the simple but realistic business model described in
  • on FaBLinker and study the answers and practical explanations of the relevant business and financial concepts.
  • It sets a series of challenges to introduce and explore all the financial issues managers are likely to face in the three generic key results areas:
  • Profit
  • Stability
  • Asset Utilisation
  • The exercise prepares managers for the directed and self-selected smart-practice routines that will embed the financial perspective as part of their core skillset.

Practice 8 – Exploring sensitivity analysis

Practice 8

Selling price = €10

Purchase price = €5

Buy on credit = 20 units

Buy for cash = 130 units

Sell on credit = 20

Sell for cash = 80 units

Fixed overheads = €100

Overheads paid = 100%

Introduce new share capital = €500

Draw down a new loan = €300

Acquire new assets = €200

Practice 3 and complete the Sensitivity Analysis table below

What happens to Net profit if you improve

One of the items by 10% leaving the others unchanged?

Answers on p88 of the workbook

Old Profit = €400


Practice 9 – Testing a business model

Practice 9

Build a business model in FaBLinker.

Test and reinforce your skills by exploring the effect which changing each of the following has on the three Key Results Areas.

See if you can predict the impacts before you make each change.

Selling Price

Cost price

Sales Volume

Stock policy (buying volumes compared to sales volumes)

Overhead expenses

Collection times for credit sales

Payment times for credit purchases

Percentage of overheads paid

New share capital

New Loans

Changes in loan interest

Buy a new fixed asset

Sell a fixed asset

Write off a fixed asset quicker or slower (Vary depreciation charges)