The modern approach to financial management is to find out how much money is required by the company in question, and then to source at least that amount. The amount should then be invested to ensure that the objectives of the financial management and the company as a whole are met. To break this down into simple terms, financial management have the responsibility to estimate the funds required, raise the funds and finally to invest the funds.
When raising finance a financial management team should ensure that they strike a balance of owned and borrowed funds. This is simply so the company does not have too big an amount of debt on its hands. Once the funds have been raised it is important to spend them wisely, normally on fixed assets and using the balance as working capital. Fixed assets should only be purchased if they can add value to the business, especially long-term value. Most fixed assets that would be purchased by a company will be expensive so they need to be able to produce work for a considerable period of time.
Working capital will be required for the day-to-day running of the company, and for emergencies. This working capital should not be too large as spare money may gain interest in the bank but it should be cycled back into the company.
An important decision of financial management is how much to pay the shareholders, and how much to retain as working capital for the business. Shareholders expectations, and the company performance as a whole, need to be taken into consideration when making this decision.