Why is it important for a business to set financial objectives?

• A. To provide a clear direction for financial planning and performance measurement.
• B. To eliminate the need for budgeting and forecasting.
• C. To ensure that all expenses are tax-deductible.
• D. To guarantee that profits will increase every year.

Answer: (A)

Verified step by step guidance

1. Understand the concept of financial objectives: Financial objectives are specific goals related to the financial performance and position of a business, such as profitability, liquidity, and growth. They serve as benchmarks for decision-making and evaluation.
2. Recognize the importance of financial objectives: Setting financial objectives provides a clear direction for financial planning, helping businesses allocate resources effectively and prioritize activities that align with their goals.
3. Analyze the role of financial objectives in performance measurement: Financial objectives allow businesses to measure their performance against predefined targets, enabling them to identify areas for improvement and make informed decisions.
4. Evaluate the incorrect options: Consider why the other options are not valid. For example, financial objectives do not eliminate the need for budgeting and forecasting, nor do they ensure all expenses are tax-deductible or guarantee profits will increase every year.
5. Conclude with the correct reasoning: The correct answer is that financial objectives provide a clear direction for financial planning and performance measurement, as they help businesses stay focused and achieve sustainable growth.