Financial Chapter 2

• 1.) The co. continues regardless of personal misfortunes, deaths, etc.
• 2.) Limited liability.

• 1. Stock Companies
• 2. Mutual Companies
• 3. Fraternal Benefit Societies

• Owned by stockholders.
• If making a profit, stockholders get dividends.
• Easy to establish.
• Can raise funds by selling more stock.

• Owned by policyholders.
• PO's may get policy dividends.
• Must sell a certain # policies in advance.
• Protects co. from being taken over by another co.
• Decreased filing & reporting requirements.

• Org. formed to provide social & ins benefits to its members. Often share common ethnic, religious or vocational background.
• Requires officers be elected by society members.
• Only members & families get benefits.

• If it's too narrow it limits what a co. can do to expand business.
• If it's too broad it can be hard for the co. to do with its resources.

With a SWOT analysis: Strengths and Weaknesses against Environmental Opportunities and Threats.

A preliminary corporate business plan is sent downward to managers in various operational areas.

Operational plans focus on specific areas of co operations, and extend only 1-2 yrs into the future. Specific, action oriented activities.

• 1.) Product
• 2.)Geographic Region
• 3.) Customer Type
• 4.) Function

• Advantages: simple, focuses on development of managerial & tech skills in ea fx area.
• Disadvantages: if # products & size of co. get too big, it becomes less effective.

• Advantages: empees who are most involved with a particular type of product makes decisions related to that product.
• Disadvantages: maintaining SBU's can lead to duplication of effort & increased costs.

• Advantages: territories w/distinctive regulatory or language differences get empees trained for that.
• Disadvantages: maintaining SBU's can lead to duplication of effort & increased costs.

• Advantages: increases co's ability to satisfy distinct customer needs.
• Disadvantages: SBU's, duplicated effort

• Board of directors
• Management
• Employees
• Committees

• 1.) Establish performance standard.
• 2.) Measure actual performance.
• 3.) Compare actual performance w/established standards.
• 4.) Evaluate results and initiate action, if necessary.

• 1.) Steering Controls - established in advance, describe perf. expectations.
• 2.) Concurrent Controls - continuous monitoring.
• 3.) Feedback Controls - compare actual perf. w/standards. Fine-tunes plans & processes after they've been performed.

A co. whose ownership is restricted to specified individuals.

A co. that sells ownership shares to the public.

Conversion of a stock ins co to a mutual ins co.

conversion of mutual ins co to stock ins co.

a written statement that describes a co's fundamental purpose or reason for being.

The process co's use to plan, organize & control operations effectively & efficiently.

The process of evaluating business opportunities, assessing resources, determining goals, and developing strategies for implementation and control.

In planning, an analysis where a co weighs co strengths & weaknesses against environmental opportunities & threats.

A statement of a long term result a co plans to achieve.

A long term method that a co. intends to use to achieve its objectives.

Area of business distinct from other areas in a co. in that it generates its own profits, has separate set of customers & competitors, own management, capable of having own goals & strategies.

A fx'l area performs business processes for multiple SBU's & shares accountability for the cost, timing, quality of those processes w/ the SBU's.

Visual display of various jobs and the formal lines of authority and reporting w/in a co.

Elected by a co's owners, this group of ppl serves as the co's primary governing body.

Group of ppl chosen to consider, investigate or act on specified issues.

The number of ppl who report directly to a manager.

The right an employee has to make decisions, take action and direct others.

A principle which states that each employee should be under the authority of and be accountable to only one person.

The process of monitoring, evaluating and regulating how effectively and efficiently a co and its empees are performing the activities necessary for achieving the co's goals.

A previously established level of performance against which actual performance can be measured.

A repetitive process designed to ensure that all areas of a co. adhere to the co's performance standards.

• A control that is established in advance that describes the co's expectations.
• AKA feedforward control.

A control that addresses a co's current activities and systems by continuously monitoring activities as they are performed.

A control used to compare actual performance with established standards.

A financial plan of action expressed in monetary terms that covers a specified time period.

A systematic exam & evaluation of a co's records, procedures & controls.

An evaluation of whether a co's financial info, financial statements & source docs comply w/accounting standards, are fair and consistent depiction of the co's financial condition and performance.

A computerized system that provides info about a co's daily operations.

A report produced automatically by an ins co's management information system when certain predetermined conditions or exceptions in operating pferformance occur.