What do you understand by financial management? What are its various components?

Financial management refers to the efficient and effective management of money (funds) in such a manner as to accomplish the objectives of the organization. It is the specialized function directly associated with the top management. The significance of this function is not only seen in the 'Line' but also in the capacity of 'Staff' in overall administration of a company. It has been defined differently by different experts in the field.

It includes how to raise the capital, how to allocate it i.e. capital budgeting. Not only about long term budgeting but also how to allocate the short term resources like current assets. It also deals with the dividend policies of the share holders.

Financial Management System Components

There are three main parts of a financial management system:

• The budget,
• Financial controls and procedures, and
• Financial record keeping.

The Budget

The budget is the detailed plan for the anticipated revenues and expenditures of the corporation. It is basic to a corporation’s planning process. The budget summarizes how much money the corporation expects to receive as revenue. It also plans for how the money will be spent with respect to expenses and commitments.

Typical budgets cover a one year period but the budget process is ongoing. The staff and the board of directors _____ _____ __________ ________ ________ ___ _____.
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