CIMA E1 Notes: D1. Shape Of The Finance Function | aCOWtancy Textbook (2024)

FAQs

What is the shape of the finance function CIMA? ›

Then traditional shape of the financial function was a hierarchical triangle, it then migrated to a segregated triangle and finally, the bottom corners of the triangle are knocked off by technological automation leaving it to be a diamond shape.

The Porter Diamond Model visually resembles the points of a diamond and includes the factors of strategy, structure and rivalry, related industries, demand conditions, and factor conditions. The model is used by businesses to guide and shape strategy regarding investing and operating in national markets.

Board of Directors approve the financial policy, declare dividends and translate the aspiration of shareholders into specific goals and objectives and select & appoint the senior officers. The Controller is concerned primarily with the Planning, Accounting and Control activities.

Finance functions cover Investment (allocating funds to assets for growth), Dividend (deciding on profit distribution to shareholders), Financing (raising capital through equity or debt), and Liquidity (ensuring sufficient cash flow for operations).

The Chartered Institute of Management Accountants (CIMA) is the global professional management accounting body based in the UK. CIMA offers training and qualification in management accountancy and related subjects.

Shape risk in finance is a type of basis risk when hedging a load profile with standard hedging products having a lower granularity. In other words, a commodity supplier wants to pre-purchase supplies for expected demand, but can only buy in fixed amounts that are bigger or smaller than the demand forecasted.

Financial structure refers to the mix of debt and equity that a company uses to finance its operations. It can also be known as capital structure. Private and public companies use the same framework for developing their financial structure but there are several differences between the two.

Capital Structure can be calculated as debt-equity ratio i.e. Debt / Equity or as the proportion of debt out of the total capital i.e. Debt / (Debt +Equity). Here, Debt = total outside liabilities of the business, and Equity = total shareholders' funds.

Finance functions are responsible for measuring and recording company performance; analyzing past results, while forecasting opportunities and measuring risks; providing actionable insight to inform and drive business outcomes. The objective of finance is not just to track company progress, but enhance it.

Finance involves managing the firm's money. The financial manager must decide how much money is needed and when, how best to use the available funds, and how to get the required financing. The financial manager's responsibilities include financial planning, investing (spending money), and financing (raising money).

Who is responsible for the finance function? ›

Headed by the Chief Financial Officer (CFO), the finance department supports the company's general management in making management decisions and presenting financial statements.

CIMA is the world's leading professional body of Management Accountants. Management Accountants analyze financial information from a management perspective (as opposed to a compliance perspective e.g. in audit etc) to improve business performance. In that sense, it is a business management function.

Financial structure refers to the mix of debt and equity that a company uses to finance its operations. It can also be known as capital structure. Private and public companies use the same framework for developing their financial structure but there are several differences between the two.

CIMA stands for the Chartered Institute of Management Accountants. Although management accountants can practise general accountancy, they have a very specific skills set, combining accounting, finance and management.