Chapter 1: An Overview of Financial Management and the Financial Environment & Licenses/Certifications

What nine attributes are desired in a company?

(1) innovativeness, (2) quality of management, (3) long-term investment value, (4) social responsibility, (5) people management, (6) quality of products and services, (7) financial soundness, (8) use of corporate assets, and (9) effectiveness in doing business globally.

Proprietorship

A business owned by one person Starting a business as a proprietor is easy—one merely begins business operations after obtaining any required city or state business licenses. The proprietorship has three important advantages: (1) It is easily and inexpensively formed. (2) It is subject to few government regulations. (3) Its income is not subject to corporate taxation but is taxed as part of the proprietor's personal income. Proprietorship also has three important limitations: (1) It may be difficult for a proprietorship to obtain the funding needed for growth. (2) The proprietor has unlimited personal liability for the business's debts, which can result in losses that exceed the money invested in the company. (Creditors may even be able to seize a proprietor's house or other personal property!) (3) The life of a proprietorship is limited to the life of its founder. For these three reasons, sole proprietorships are used primarily for small businesses. In fact, proprietorships account for only about 4% of all sales, based on dollar values, even though about 72% of all companies are proprietorships.

Corporation

A corporation is a legal entity created under state laws, and it is separate and distinct from its owners and managers. This separation gives the corporation three major advantages: (1) unlimited life—a corporation can continue after its original owners and managers are deceased; (2) easy transferability of ownership interest—ownership interests are divided into shares of stock, which can be transferred far more easily than can proprietorship or partnership interests; and (3) limited liability—losses are limited to the actual funds invested. two disadvantages: (1) Corporate earnings may be subject to double taxation—the earnings of the corporation are taxed at the corporate level, and then earnings paid out as dividends are taxed again as income to the stockholders. (2) Setting up a corporation involves preparing a charter, writing a set of bylaws, and filing the many required state and federal reports, which is more complex and time-consuming than creating a proprietorship or a partnership. [CONTEXT:BONUS BELOW] The charter includes the following information: (1) name of the proposed corporation, (2) types of activities it will pursue, (3) amount of capital stock, (4) number of directors, and (5) names and addresses of directors. The charter is filed with the secretary of the state in which the firm will be incorporated, and when it is approved, the corporation is officially in existence. [Footnote] After the corporation begins operating, quarterly and annual employment, financial, and tax reports must be filed with state and federal authorities. The bylaws are a set of rules drawn up by the founders of the corporation. Included are such points as: (1) how directors are to be elected (all elected each year or perhaps one-third each year for 3-year terms), (2) whether the existing stockholders will have the first right to buy any new shares the firm issues, and (3) procedures for changing the bylaws themselves, should conditions require it.

Partnership

A partnership exists when two or more persons associate to conduct a business. A partnership's advantages and disadvantages are generally similar to those of a proprietorship. Regarding liability, the partners potentially can lose all of their personal assets, even assets not invested in the business, because under partnership law, each partner is liable for the business's debts. Therefore, in the event the partnership goes bankrupt, if any partner is unable to meet his or her pro rata liability then the remaining partners must make good on the unsatisfied claims, drawing on their personal assets to the extent necessary. To avoid this, it is possible to limit the liabilities of some of the partners by establishing a limited partnership, wherein certain partners are designated general partners and others limited partners. In a limited partnership, the limited partners can lose only the amount of their investment in the partnership, while the general partners have unlimited liability. However, the limited partners typically have no control—it rests solely with the general partners—and their returns are likewise limited. Limited partnerships are common in real estate, oil, equipment-leasing ventures, and venture capital. However, they are not widely used in general business situations, because usually no partner is willing to be the general partner and thus accept the majority of the business's risk, and no partners are willing to be limited partners and give up all control. In both regular and limited partnerships, at least one partner is liable for the debts of the partnership. However, in a limited liability partnership (LLP) and a limited liability company (LLC), all partners (or members) enjoy limited liability with regard to the business's liabilities, and their potential losses are limited to their investment in the LLP. Of course, this arrangement increases the risk faced by an LLP's lenders, customers, and suppliers.

S corporations

A small corporation that, under Subchapter S of the Internal Revenue Code, elects to be taxed as a proprietorship or a partnership yet retains limited liability and other benefits of the corporate form of organization.

ABR

Accredited Buyer Representative is a designation from the Real Estate Buyer's Agent Council that trains experienced REALTORS@ in specifically representing the real estate consumer. The ABR designation is awarded to real estate practitioners who complete a comprehensive two- day REBAC course in buyer representation, achieve a passing grade on the written examination, demonstrate practical experience by completing and closing five real estate transactions in which the candidate functioned as a buyer's representative and who maintain a membership in good standing with the National Association of REALTORS@ and the Real Estate BUYER'S AGENT Council.

AFC

Accredited Financial Counselors have certified skills to assist individuals and families in the complex process of financial decision making. The exam is a two part exam that is administered by the Association for Financial Counseling and Planning Education. www.afcpe.org

ASA

Accredited Senior Appraiser (ASA) Each accredited member of the American Society of Appraisers has eamed a professional designation in one or more specialized areas of appraisal. To receive the accreditation, the appraiser must pass intensive courses/written examinations, submit representative appraisal reports, an appraisal experience log and evidence of a college degree or its equivalent. Every accredited appraiser must start his or her ASA membership as a Candidate member. In order to be accepted for Candidate membership, the prospective Candidate must be interviewed and approved by his or her local chapter. Subsequently, each Candidate must pass ASA's Ethics Examination and an examination on the Uniform Standards of Professional Appraisal Practice (USPAP) within a specified period of time. (The Unifonn Standards are published each year by authorized by Congress as the source of appraisal standards and appraiser qualifications.) The Candidate's technical appraisal proficiency and understanding of the fundamentals of appraisal ethics, principles and concepts are evaluated by intensive written examinations. Copies of the Candidate's appraisal reports are reviewed and must meet professional criteria. When the Candidate has met all these requirements and has gained the necessary experience, he or she may apply for advancement to Accredited Member or Accredited Senior Appraiser status.

AVA

Accredited Valuation Analyst (AVA) www.nacva.com The National Association of Certified Valuation Analysts (NACVA) trains and certifies Accredited Valuation Analysts (AVA) to perform business valuations as a service to both the consulting community and the users of their services. Through training and rigorous testing, AVAs demonstrate they are qualified to provide capable and professionally executed valuation services. NACVA requires training as a prerequisite to certification to assure that practitioners have the knowledge and understanding necessary to perform competent services, and to assure a level of consistency and continuity in their work product. Users of valuation services benefit by having greater confidence that the service they receive is professional in quality, adheres to industry standards of practice, and meets a level of expertise the Association deems credible and worthy of one of its certified members. AVAs must hold a business degree from an accredited institution of higher education and demonstrate substantial business valuation experience, among other requirements.

Agency Problem

An expense, either direct or indirect, that is borne by a principal as a result of having delegated authority to an agent. An example is the costs borne by shareholders to encourage managers to maximize a firm's stock price rather than act in their own self-interests. These costs may also arise from lost efficiency and the expense of monitoring management to ensure that debtholders' rights are protected. Agency Problems: An Agency Problem Occurs when two people work together but their goals are not necessarily the same. Agency Problem between Stockholders (owners) and managers. I. Owners: The Owners of the company would like the managers to maximize their wealth. 2 Managers: The managers of the company are more interested in maximizing their own wealth. So there is a conflict between the two parties. We call this conflict an agency problem 3. Things managers can do to maximize their own wealth at the expense of the owners. a. Take Perks b. Expand the firm to a large size c. Reduce the risk of the firm d. Oppose takeover threats e. Keep a failing company alive longer than is optimal 4. Methods to reduce the conflict between owners and managers Provide managers more of their compensation in the form a. of stock b. Monitor the managers through audits c. Increase the threat of firing d. Increase the threat of takeover

CPM

CPM — Certified Property Manager designation is the oldest and most prestigious achievement in property management. It is awarded to property managers whose experience, education and ethical standards warrant such distinction. CPMs are experts in managing apartments, office buildings, commercial centers and homeowners' associations and are informed on tax laws insurance regulations, and critical investment factors. To become a CPM, one must complete a combination of core and elective requirements. One will need 260 points --160 required points and 100 elective points - in addition to meeting some other criteria unrelated to the point system.

CAS

Certified Annuity Specialist (CAS) The Certified Mutual Fund Specialist Program gives students - most often, financial services employees - a broad overview of the mutual fund business. The program looks at the industry, its history, regulation, providers, structure, operations, distribution, marketing and the popularity of open-end mutual funds in the United States. National Investment Company Service Association (NICSA) offers the program, which is made up of three courses: Introduction to the Mutual Fund Industry Course, Mutual Fund Operations Course, Mutual Fund Distribution & Marketing Course Completion of the three courses eams the student a certificate from NICSA in the specific area of study. The program is based on "Purely American Invention: The U.S. Open-End Mutual Fund Industry," a book by Lee Gremillion. Dr. Gremillion is a former partner with Price waterhouse Coopers LLP, where he led the Investment Management and Securities Operations consulting group in the Midwest. Dr. Gremillion is now a professor at Capella University. He also holds a doctoral degree from Harvard. Like the book, the interactive courses help students understanding the breadth of mutual fund operations and their context.

CBA

Certified Business Appraiser (CBA) is available to those members of The Institute of Business Appraisers, Inc. who are able to demonstrate that they have attained a high level of professional competence and conduct. The CBA accreditation designates the appraiser as a true professional in hismer field, worthy of the admiration of fellow appraisers and deserving the fullest confidence of clients and potential clients. Applicant must pass a comprehensive written examination on current business valuation theory and practice. Content and administration of the examination shall be as described in the application handbook, under heading "Written Examination." Arrangements may be made for the CBA examination to be supervised by a private proctor. Please contact IBA headquarters for qualifying details.

CMB

Certified Business Manager (CBM) www.apbm.org The Certified Business Manager (CBM) program provides a generalized business education at the graduate level, covering essential subject matter useful to business practitioners. The CBM program is designed to complement existing specialty certifications, to validate a business professional's practical business experience and knowledge, and to act as an efficient preparatory tool for a graduate business program. The credential takes a comprehensive MBA curriculum and presents it in a certification format, teaching and measuring the skills and knowledge required to become a successful manager. The CBM Exam covers ten essential areas/modules of business (i.e. Accounting, Finance, Information Technology, Marketing Management, Human Resource Management, International Business and Quality Management) and their cross-functional applications in three, three hour- long parts. Each part contains 150 multiple-choice questions.

CCM

Certified Cash Manager (CCM) The Association for Financial Professionals, AFP, has established the Certified Cash Manager (CCM) designation to help provide it's members and the business community with a body of knowledge necessary for functioning in the ever changing global economy which exists today. Each June the AFP offers a standardized exam covering the various disciplines of treasury management. The CCM designation is awarded to those individuals who display a comprehensive understanding of this material. This material includes the banking and payment systems, disbursements, collections and cash concentration, bank relationship management, short-term borrowing and investing, cash flow forecasting, and international cash management. The exam is administered by the AFP in various cities across the United States.

CCE

Certified Credit Executive (CCE) The Certified Credit Executive' (CCE@) is NACM's executive level designation which endorses its achievers as capable of managing the credit function at an executive level. Candidates must pass a rigorous, four hour exam which tests application skills in the areas of accounting, finance, domestic and international credit concepts, management and law.

CFP

Certified Financial Planner (CFP) www.c(p-net Why has the CERTIFIED FINANCIAL PLANNER certification become so sought after by consumers and the financial planners who serve them? The answer is simple. The public is looking for a planner who has demonstrated a commitment to competency, and financial professionals want an established certification that sets them apart in a globally expanding financial planning profession. CFP Board research shows consumers increasingly rely on credentials when selecting a financial adviser. You will be equipped to provide truly personalized services to clients and maintain high levels of financial planning professionalism and expertise. The CFP@, CERTIFIED FINANCIAL PLANNER and certification marks are the most recognized financial planning marks in the world. Unlike an educational designation offered by a college or university, CFP certification is based on independently established public interest standards. As a result, it prepares you for a career-long commitment to meeting the ever-changing needs of your clients.

CFFA

Certified Forensic Financial Analyst www.nacva.com The Certified Forensic Financial Analyst (CFFA) credential is designed to demonstrate to the legal community that the designee possesses a level of experience and knowledge deemed acceptable by the National Association of Certified Valuation Analysts (NACVA) and the Forensic Institute for Financial Experts (Fl) to provide competent and professional forensic financial litigation support The training includes economics, statistics, and calculating damages, followed by a five-day practicum in which participants learn about commercial damages and participate in a damages study, which takes them through the processes of deposition, mediation, and jury trial.

CFS

Certified Fund Specialist (CFS) www.icfs.com The CFS is the oldest designation in the mutual funds industry. After you complete the program your knowledge about mutual funds will be head and shoulders above the competition. The information and marketing ideas you will learn are unparalleled. Studies research reports, industry trends, new ideas and products, sales presentations and marketing tips among others. The CFS program is a 60-hour self-study program. The cost of the program is $1,165. The cost includes everything: registration, shipping, materials, testing, and the first year's certification fee. Materials include: Morningstar's Guide to Mutual Funds, Selected Readings I, Selected Readings, Student Manual with sample questions, and the Mutual Fund & Variable Annuity Directory. The final exam is given at Thomson Prometric Centers which are located throughout the country. The exam is administered by the NASD

CGFM

Certified Government Financial Manager (CGFM) www.agacgfm.org Since its inception in 1994, the CGFM has become the standard by which government financial management professionals are measured. Its education, experience and ethics requirements have served to elevate the most seasoned financial professionals. The CGFM program spans the public, private and academic sectors in the United States and abroad. It recognizes the unique skills and experience of government financial management professionals. It identifies those who have knowledge in many functional areas and can apply it in a government setting.

CIC

Certified Insurance Counselor_(ClC) www.scic.com The Certified Insurance Counselors (CIC) Program has been the insurance industry's premier, proven source for practical, real-world education since 1969. Designed to cover important aspects of the insurance field, each of five institutes is 20 hours of instruction

CPFO & CFOA

Certified Public Finance Officer (CPFO) & The Certified Public Finance Officers Program (Certification Program) of the Government Finance Officers Association of the United States and Canada (GFOA) is a broad educational self-study program designed to verify knowledge in the disciplines of government finance, The Certification Program is governed by the Council on Certification. Technical and administrative support for the program is provided by Radford University's Governmental and Nonprofit Assistance Center. To earn the designation of Certified Public Finance Officer (CPFO), candidates must pass a series of five examinations covering the major disciplines of public finance.

CRM

Certified Risk Manager (CRM) www.scic.com The Certified Risk Managers International (CRM) designation demonstrates that you are knowledgeable in all areas of managing risks, hazards, and exposures. The five courses give you in-depth knowledge about today's highest priorities — identifying, analyzing, controlling, financing, and administering operational risks — as well as political risks, catastrophic loss exposures, third-party exposures, fiduciary exposures, employee injury exposures, juridical risks, legal risks, and more — whether insurable or not. The skills you learn will make you more proactive and valuable to your organization in discovering how risks can interrupt the flow of earnings and how to protect against it.

CTF & CTA

Certified Treasury Professional (CTF) and Certified Treasury Associate (CTA) The CTP sets the standard in the financial profession and is a symbol of excellence. It signifies that an individual has demonstrated the knowledge and skills required to perform competently in today's complex treasury environment. As a result of recent changes in corporate America. treasury and finance professionals face more public scrutiny than ever before. They must now demonstrate a mastery of risk management, capital structure. mergers and acquisitions and corporate governance. in addition to cash management topics. With the CTP designation, AFP recognizes the significant increase in knowledge required of treasury professionals on the job.

BCCA

Certified in Asset Allocation (BCCA) www.icfs.com Board Certified in Asset Allocation (BCAA) is the only designation of its kind. It was created to address the frustration of investors, brokers, and advisors who now understand the value of a properly-constructed portfolio. Yet, the general public remains leery of relying on in-house solutions and proprietary products that lack objectivity. The 60-hour self-study BCAA program is appealing for several reasons: (l) the materials are completely neutral and have no hidden agenda, (2) content is comprehensive, logical, and easy to understand, (3) the information gained can be applied to all of your clients, (4) it is the only asset allocation certification program in the country, and (5) the designation will set you apart from your present and future competition. The three final exams are given at Thomson Prometric Centers and administered by the NASD. Students must also complete two open-book case studies. The $1,165 BCAA program is fully accredited and counts as four units toward the MSFS graduate degree.

CFA

Chartered Financial Analyst (CFA) Website www.cfainstitute.org First awarded in 1963, the CFA charter has become known as the gold standard of professional credentials within the global investment community. Around the world, employers and investors recognize the CFA designation as the definitive standard for measuring competence and integrity in the fields of portfolio management and investment analysis.

ChFC

Chartered Financial Consultant (ChFC) A financial planning designation for the insurance industry awarded by the American College of Bryn Mawr. ChFCs must meet experience requirements and pass exams covering finance and investing. They must have at least three years of experience in the financial industry, and have studied and passed an examination on the fundamentals of financial planning, including income tax, insurance, investment and estate planning

CMT

Chartered Market Technician (CMT) hltp://wms.mta.org/ The Chartered Market Technician (CMT) Program is a certification process in which candidates https://quizlet.com/317792427/edit#addRow are required to demonstrate proficiency in a broad range of technical analysis subjects. Administered by the Accreditation Committee of the Market Technicians Association (MT A), the CMT Program consists of three levels: Level I and 2 are multiple choice exams; at level 3, candidates have the option of writing a research paper or taking a third (essay) exam

CBF

Credit Busines fellow (CBF) The Credit Business Fellow (CBF) Designation is an academic and participation-based designation which illustrates that achievers are knowledgeable about and have contributed to the field of business credit by first having earned the CBA designation as well as having completed additional course work. The CBF signals competence in intermediate financial analysis and business and credit law. In addition to completing course work, CBF designation applicants must show evidence of 75 NACM Career Roadmap points.

IREM

Institute of Real Estate Management (IREM)

REBS

Registered Employee Benefits Specialist (REBS) The REBC designation signifies that an individual working in the employee benefits field has successfully completed a comprehensive five-course program. The number of electives provides an opportunity for individuals to specialize within the broader employee benefits field. The designation is especially suitable for professionals who are selling or servicing the group insurance, health insurance, retirement planning, and incentive compensation markets. More than 1,250 REBCs have been awarded, including those granted by the College since assuming ownership of the designation from the National Association of Health Underwriters. The designation requires five courses - three which are required and two electives. Students also must meet specified experience requirements, maintain ethical standards, and agree to comply with both The American College's Code of Ethics and Procedures and applicable continuing education requirement

Series

Series 6: Investment Company/Variable Contracts Representative Series 7: General Securities Representative Series 63: Uniform Securities Agent Series 64: Uniform Real Estate Securities Exam Series 65: Uniform Registered Investment Advisor

BCS

The Board Certified in Securities (BCS) designee is just such a person. The BCS program is a 60-hour self-study program. The cost includes everything: registration, shipping, materials, testing, and the first year's certification fee. The three final exams are given at Thomson Prometric Centers and administered by the NASD. Students must also complete two open-book case studies. The BCS program is fully accredited and counts as four units toward the MSFS graduate degree. There are only two designations for those who specialize in individual securities: Chartered Financial Analyst (CFA) and Board Certified in Securities (BCS). The CFA program is designed for portfolio managers, not advisors who deal with the general public. The CFA program costs several thousand dollars and takes several years to complete. The BCS program was developed for the practitioner who has a personal relationship with an individual or company. The BCS materials can be completed in 60 hours or less and cost just $1,165.

CFM

The Certified Financial Manager (CFM) certification provides Members who are involved with corporate cash management, financing and investment decisions, and risk management with a means for further demonstrating an expanded skill set. This exam provides an in-depth measure of competence in areas such as financial statement analysis, working capital policy, capital structure, valuation issues, and risk management. www.imanet.org

CBA

The Credit Business Associate (CBA) is an academic-based designation which signals mastery of three business-credit related disciplines: basic financial accounting, business credit principles and introductory financial statement analysis. There is no minimum work experience requirement for this designation level and the course work needed to qualifr for this designation can be obtained through colleges, local NACM Affiliated Association programs, self-study or nationally- sponsored programs.