In order to place financial management within the general structure of the company, and with the aim of pinning down the purpose of this area and understanding the objective of financial management, it seems necessary first to define the financial function. It is a generally accepted convention to classify business management into production, commercial and financial management.

Production management has a technical and economic sense, through which the necessary elements are provided for the generation of revenues and costs suited to obtaining a given profit. The production function and its constraints appear in market economies as the most important factor in a first stage of development. Production — still unsophisticated — and the achievement of certain manufacturing levels absorb most of the company’s energies.

A second stage, characterised by the need to serve the market, introduces us to the phase we have called commercial. Its internal evolution entails the development of marketing techniques, design, and so on.

Finally, this evolution introduces us to financial management, which focuses its efforts on the study and choice of the various means of financing in accordance with the company’s internal circumstances and the different options offered by the capital market. This phase is characterised by the existence of broad and sophisticated possibilities. That said, this does not imply that no financial management existed in the earlier phases; rather, it was simpler and the different options more limited.

The three functions described coexist within the company, but in developed societies the implications of financial management are very far-reaching, and mistakes in this field have prolonged effects that are difficult to recover from.

Objective

Now that management has been clarified, it must be made clear that the objective of financial management is to execute and develop the financial function — which, in turn, has the purpose of providing the company with the various financial resources needed for the normal development of its economic activity, on favourable cost terms and in such a way that their orderly combination results in a sound asset structure and the growing generation of profits.

In short, we can say that the objective of financial management is to provide the capital needed to achieve the company’s expansion.

The financial function is subject to management, and this is generally carried out by the Finance Department. We say “generally” because there are small companies and businesses in which management is personalised rather than departmental. In these cases, it is usually the Managing Director who performs all (or almost all) of the functions, including the financial one.

By contrast, in other cases financial management has a very broad scope and includes among its responsibilities short-term cash management. In these cases, the treasury and its management fall under the Finance Department, whereas on other occasions the treasury falls directly under the Administration Department or is autonomous.

Whether the study of the financial structure is carried out with an internal orientation or, on the contrary, an external one, the management will be reflected in a series of accounting documents that are basically the balance sheet and the profit and loss account.