What is the definition of financial management

Financial management has been a hot topic over the last three years as the global financial crisis debilitated the world's economy. This article describes some of the basic functions that define this important role in organisations that may or may not be profit-seeking enterprises.

Coordination of activities

Financial management is the coordination of all the financial activities within an organisation. This process often falls under the control of the finance manager and is crucial to the overall health of an organisation. The main components of financial management all revolve around basic finance. These include organising, directing and coordinating key activities, such as internal funds use, investment, profit analysis and dividend sharing and so on.
Internal funds utilisation Internal funds utilisation is the primary job of a financial manager. The incomes and expenses of an organisation rely on the size of the firm’s budget. The manager has the responsibility of ensuring that every department conforms to the limits set. This usually takes place with the help of accountants and auditors who monitor financial flows and indicate the presence of profits, losses, surpluses, deficits, fraud and so on.

Profit-seekers

For organisations that seek profits, investment options are an indispensable part of financial management. The manager is usually constantly undertaking a finance analysis of various investment options that the company can take, whether these are within its sector of business or not. This function consumes most of a company’s profits and investment budget. If it is steered well, it gradually makes a firm profitable. Dividend sharing For those companies that are profitable, dividend sharing is an important part of financial management. The shareholders usually gauge a chief executive’s performance based on his ability to deliver regular and reasonable dividends during his tenure. Publicly listed firms usually have annual dividend payouts based on their performance. On the other hand, private firms are more flexible and can even have semi-annual dividend releases. Aim of financial management The main aim of financial management is to ensure a stable financial base for an organisation. This is simply the act of maintaining a strong supply of funds for the firm, while rewarding the shareholders who invest their time and money to see the firm become a success.