Business 101: Financial Management Definition And Purpose

Financial management is one of the most important parts of a company. It involves planning, organizing, directing, and controlling the financial activities of a company. In addition, financial management also has different scopes of work and goals.

In this article, we have compiled several pieces of information related to financial management definition and purpose.

Financial management definition

J.F. Bradley described financial management as an aspect of business management to regulate company capital.

He also added that financial management should also consider the selection of resources to achieve the goal.

In addition, Joseph L. Massie gave a slightly different explanation. He said that financial management is a business activity responsible for obtaining and managing company funds to achieve an effective operation.

Based on those two experts’ definitions, we can conclude that financial management is the practice of managing and controlling a company’s income and efficiently using it to achieve the company’s goal.

Financial Management Definition

Financial management purposes

There are five goals that should be achieved by financial management. Those financial management goals are:

1. Maintaining cash flow

The first goal of financial management is maintaining a steady and smooth cash flow for the company.

Through its position, financial management can monitor the amount of the company’s income and expenditure.

Through the monitoring, the company could employ some anticipations so that cash flow remains stable,

2. Increasing profit

Finance management can increase the company’s profit by providing insight into various things. In addition, it can contribute to profit increase through careful financial planning.

3. Planning capital structure

Capital structure is a mix of debt and equity used by a company to finance its assets and operation. Through financial management, the company can adjust the composition of the capital structure to balance the equity and debt.

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4. Ensuring the safety of investment

Besides planning, financial management will also deal with the company’s investment. This includes giving the right advice for investment and ensuring its security. As a result, the company can maximize its positive returns.

5. Improving company finance usage

As previously mentioned, one of the goals of financial management is to increase the company’s profit.

This goal can be achieved by improving company finance usage. For instance, a finance manager will supervise a company’s activity and replace it if it is deemed ineffective.

So, those are all the information on financial management definition and its goals. In summary, financial management is responsible to maintain the company’s finances to increase its profit.

This can be done via several methods, including capital structure planning and cash flow maintenance.

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