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LDR 640: Financial Systems Management

Weekly Forums

WEEK 1 DISCUSSION
What are the three salient areas discussed in Chapter 1 that are relevant to you? Please discuss
these three areas by incorporating real-world examples.
What are the three salient areas discussed in Chapter 2 that are relevant to you? Please discuss
these three areas by incorporating real-world examples.
The three areas in Chapter 1 that are relevant to me include value creation, capital
budgeting decision, and net present value or internal rate of return rule. Value creation is
something we talk about frequently within our department. Our value is whether or not we are
creating a happy customer service experience. Our text describes value creation in an aspect of
creating profits for the company (Hawawini &Viallet, 2011). If we do not create value / good
customer service, then our patients and parents will find other hospitals to receive their care. A
capital budgeting decision is primarily concerned with the acquisition of fixed assets, such as
equipment (Hawawini &Viallet, 2011, p. 8). Several years ago our department had to make the
decision of acquiring new ventilators. Currently we look at purchasing extra single pieces of
equipment that we run out of when there are very busy patient populations. In order to make
these decisions, management would use a net present value or internal rate of return rule to
determine if purchasing new equipment or renting equipment would create more value for the
department.
The three areas in Chapter 2 are short-term assets, tangible assets, and the income
statement. Short-term assets include cash and cash equivalents, accounts receivable,
inventories, and prepaid expenses (Hawawini &Viallet, 2011, p. 33). Inventory is the most
pertinent aspect within this category. We need enough supply on hand to do the job and not run
out, but not overstocking to the point where supplies are not used for weeks or months. For a
project in my previous business class, the department head and I spoke about equipment
depreciation and how this affects the bottom line regarding tangible assets. The income
statement is summary of the operating and financial transactions. This is also called a profit and
loss statement (Hawawini &Viallet, 2011). All revenues and expenses should be listed on this
statement for a specified period of time.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 2 DISCUSSION
Which three concepts or calculations discussed in Chapter 3 are most important or useful to you?
How did you gain an understanding of these materials?
Which three salient areas discussed in Chapter 4 are relevant to you (present and/or future) but
difficult to understand? What is the best practice to learning that you can share with the class?
Chapter 3 discusses inventory turnover, the average payment period and the net working
capital. Inventory turnover is measured as the cost of goods sold divided by the ending
inventories (Hawawini & Viallet, 2011). Hawawini and Viallet (2011) further state that a higher
inventory turnover means there is a lower investment by the firm in their inventory. This of
course leads to a better financial picture. The average payment period is calculated by dividing
accounts payable by the average daily purchases (Hawawini &Viallet, 2011). A firms net
working capital is equal to their long-term financing minus their net fixed assets (Hawawini
&Viallet, 2011). I gained an understanding of these concepts through our textbook, other
resources available within this class, and from my previous finance class.
The three concepts from Chapter 4 are net cash flow from operating activities, net fixed
assets, and free cash flow. Net cash flow from operating activities or NOCF is the cash inflow
from operations minus the cash outflow from operations (Hawawini &Viallet, 2011). The net
fixed assets(end) is equal to the net fixed assets(beginning) plus fixed assets acquisitions minus
depreciation expense and subtracting fixed assets disposals (Hawawini &Viallet, 2011). Free
cash flow equals cash flow from operations plus cash flow from investing activities (Hawawini
&Viallet, 2011, p. 121). Learning for me is made easier by looking at examples to see how
calculations are derived.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 3 DISCUSSION
Which three areas discussed in Chapter 5 are most familiar (or least challenging) to you? Why?
The three areas that are discussed in Chapter 5 that I am most familiar with are return on
sales, return on assets, and what determines the operating profitability of a firm. The return on
sales is the earnings a firm makes after their taxes and sales (Hawawini &Viallet, 2011). The
return on assets is a firms earnings after their tax and total assets (Hawawini &Viallet, 2011).
Return on sales and return on assets are two measures of a firms profitability. According to
Hawawini and Viallet (2011) they view the most important and comprehensive measure of a
firms profitability is their return on equity. Three of the most important indicators of the
operating profitability of a firm is the quality of their products and services, their market share,
and their costs and asset structures (Hawawini &Viallet, 2011). Without a quality product or
service, the public is not going to utilize the firm. In turn, this will determine the market share
the firm is able to control.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 4 DISCUSSION
What are the differences between a single amount (lump sum) and an annuity? Please explain the
differences through examples.
What are the differences between an ordinary annuity and an annuity due? Please explain the
differences through examples.
A lump sum is a single payment where an annuity is equal and uninterrupted periodic
cash flows (Hawawini & Viallet, 2011, p. 214). The simplest example I can think of is payouts
for the lottery. You can choose to have a lump sum or single payment or you can choose to have
annual payments of a set amount that will occur at a specific time. Another example could be
way I have made donations to different charities. I made a lump sum payment to the American
Cancer Society and I am having monthly withdrawals from my paychecks to the United Way.
An ordinary annuity and an annuity due both make payments at a specified time. The
ordinary annuity pays out at the end of a cycle, whereas the annuity due pays at the beginning of
a cycle (Butner). Some examples of these would include when bills are due. My cell phone bill
and mortgage payments are paid at the end of use or end of the month, like an ordinary annuity.
When I used to rent an apartment, that was paid for the month ahead, such as the annuity due.

References: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.S. Butner, (n.d.) What Is the Difference
Between an Ordinary Annuity & an Annuity Due? Retrieved from
http://budgeting.thenest.com/difference-between-ordinary-annuity-annuity-due-32793.html

WEEK 5 DISCUSSION
Explain the key inputs (PV, FV, PMT, I/Y, N) of TVOM calculations. Discuss the respective
effects of these inputs on TVOM outputs.
How much do you need to save each month for your retirement? This personal-finance exercise
has implications for financial planning at your work. This calculation is based on your unique
(1) amount of money already saved (PV),
(2) time horizon number of years until retirement (N = Years),
(3) expected annual investment return (I/Y), and
(4) retirement savings goal (FV).
PV is the amount of money that has already been saved by an investor. FV is the
retirement savings goal a person has. I/Y is expected annual investment return for the invested
money and N is the number of years before retirement.
PV= 50,000
Interest per Period= 6% / 12= 0.5%
Number of Periods (PMTS)= 20x12=240
PMT= 1,000
FV= 1,000,000.00
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 6 DISCUSSION
Chapter 7 - How would you evaluate capital investment projects with different life span and
different sizes of initial investments by using Payback Period (PP), Net Present Value (NPV)
methods? Describe one example for each scenario to substantiate your point of view.
How would you evaluate capital investment projects with different life span and different sizes
of initial investments by using Internal Rate of Return (IRR), and Profitability Index (PI)
methods? Describe one example for each scenario to substantiate your point of view.
Chapter 8 - Which three salient concepts or calculations from Chapter 8 are most relevant to your
personal, professional, and academic life? Please explain.
The payback period is the amount of time it takes to recover the initial investment for a
project (Hawawini & Viallet, 2011). While the net present value is described as a project or
investment having a higher present value of its future cash flows than what its present cost is. If
the net present value of a project is positive, it will increase the value of the company, so it
should be undertaken no matter the life span or size of investment. For the payback period, the
shorter the breakeven point, the better. For example, a million dollar project that has a payback
period of five years would be more profitable than a 750,000 project with a payback of four
years. For each method you would want to determine the cost and cash flows each year, in order
to determine which project is more profitable.
The internal rate of return is the discount rate that makes the NPV of the project equal to
zero (Hawawini & Viallet, 2011, p. 230). The IRR summarizes the expected cash flow with a
single rate of return. The profitability index is equal to the ratio of the present value of its
expected cash flow stream to its initial cash outlay (Hawawini & Viallet, 2011, p. 237). This is
a benefit to cost ratio to determine if the project is profitable.
Chapter 8 discusses opportunity costs which are those the company would give up if a
specific project is undertaken (Hawawini & Viallet, 2011). Other concepts from this chapter are
the actual cash flow principle and the with/without principle. In the first, cash flows are
measured at the time they occur, while the second principle describes the relevant cash flows that
are expected to increase or decrease if a project is accepted (Hawawini & Viallet, 2011).
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 7 DISCUSSION
Chapter 9 - Which three calculations discussed in Chapter 9, Sections 4 and 5 (pages 294-314)
can be linked to your learning in preceding chapters? How has your prior learning in this course
and elsewhere prepared you to learn the materials in these sections?
Chapter 10 - Which three key learning points from Chapter 10 can you apply to your daily
professional and/or personal lives? Please explain.
Chapter 11 - Which three key learning points from Chapter 11 can you apply to your daily
professional and/or personal lives? Please explain.
The valuation of common stocks calculation is linked to the time value of money
calculation. I also thought the preferred stock price and perpetual bond price calculations were
linked to the annuity calculations we learned about in previous chapters (Hawawini & Viallet,
2011).
Chapter 10 Two concepts here that affected my ability to refinance my home with a
much lower interest rate were capital and cost of debt. Total risk is another concept I could
relate to in regards to my investments within different portfolios (Hawawini & Viallet, 2011).
Chapter 11 Personal taxes, we all have them and they affect each person differently
depending on their financial situation and management. Interest expense can sometimes save a
business money because this can be a deduction for them. The types of services a company has
will influence my buying potential with that company. A good service record will have a
positive influence and vice versa. Bankruptcy is another concept discussed in this chapter.
Everyone has heard of this occurring within businesses and with persons they probably know.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 8 DISCUSSION
Which three key learning points (concepts, calculations, applications, etc.) from Chapter 12 are
applicable to you? Please explain.
The first learning point that is applicable to me is the valuation by comparables. When I
refinanced my house a year ago, the bank used a valuation by comparables to determine the
value of my house. Because of the poor housing market at the time, there were few houses to
compare to and the comparable houses had decreased substantially in value. This in turn caused
my home to be valued at much less than I had expected. The next learning points that are
applicable to me due to our learning team project are calculations for price to earnings ratio and
the price to book ratio. Both of these calculations are within the market value ratios category.
The price to earnings ratio is determined by dividing the share price by the earnings per share
(Hawawini & Viallet, 2011). The price to book ratio is calculated by taking the share price and
dividing by the book value per share (Hawawini & Viallet, 2011). Both of these calculations can
be found on page 402 of our text.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 9 DISCUSSION
In connection with Chapter 13, which three economic, business, and financial risks can you
identify based on your professional experiences thus far? How these risks have affected the
financial outcomes of the organizations with which you have been associated?
In connection with Chapter 14, how do you link globalization to leadership then to financial
management in your profession? What is the main impact of globalization on leadership decision
making concerning financial matters?
A component of operational risk that affects my workplace would be from a personnel
aspect (Hawawini & Viallet, 2011). There is a lot of competition in healthcare. Patients want to
go to the best doctor, if they have the choice. Hospitals attempt to lure doctors from other
hospitals in order to gain that prestige of that human capital. Strategic risk affects the hospital I
work for due to changes within the marketplace that we do not have control over (Hawawini &
Viallet, 2011). One of these major events was due to the government imposed healthcare laws.
There were many changes the hospital needed to learn about and understand in order to retain
their reimbursements, for one example.
Another example from our hospital is with expansion. We have collaborated with many
local hospitals over the past few years. This was promoted as a way for patients to have better
healthcare. There are also many satellite clinics with our logo many, many miles from the home
location. These risks have all affected the bottom line of my hospital. Everyone is made aware
of waste and cost saving measures in order for each person to do their part to limit loss.
The hospital I work for does not have business per se in foreign countries for financial
gain. We have many countries that we go to and provide medical services for patients that
otherwise would not receive care. We receive patients from all over the country and world for
specialty surgical services. Because of our name and reputation, we have name / global appeal.
Reference: Hawawini, G. & Viallet, C. (2011). Finance for Executives: Managing for value
creation. Mason, OH: South-Western Cengage Learning.

WEEK 10 DISCUSSION
Reflect on what you have learned in this course over the past 10 weeks. Respond to the
following two questions:
What are the top three to five "take-aways" that will benefit your current or future profession?
How have you applied what you learned in this course to your current work place? Please tell us
your stories.
One of the top take-aways that will benefit myself, but not necessarily affect my
profession is gaining some more understanding about bonds and stocks and realizing how very
little I know. It would benefit me and my portfolio to put some time into learning more about
these two areas. Another take-away for me is realizing I need to stay out of the finance
department. This class reinforced the knowledge that I am not a financial guru and have a lot to
learn about this area of running a department. My home finances are not a problem, having
endured the designing and building of my house and then just recently refinancing my home.
But, the finances for a hospital or even just one department is something entirely different
altogether.
During the several meetings with my department director, we discussed the financial
ratios I was working on for our team project and delved deeper into our discussion from a
previous class project. We talked about many of the decisions that go into deciding whether or
not to purchase or rent equipment, for one example. We went over some of the calculations he
uses to make these determinations. Another topic we discussed were budgeting decisions and
the justifications that go into these decisions.

Each team: Designate one member to post the 2-page handouts for the entire class to read.
Everyone on the team: Share best practices, discuss lessons learned from the completion of the
project, and draw conclusions based on your findings in the LTP.
I think the best practice that we as a group did was to divide the project up early on after
the group was established. This then allowed everyone to know right away what they were
responsible for and dig in to their portion of the project.
Lessons learned from this project were many. The main one being that I am not a chief
financial officer and have never read a companys financial statements prior to this assignment.
Thanks to John, he sent us the link to the statements for our company and then it was just hunting
around from there. We happened to choose a company that does not produce a product, so I had
difficulty finding the needed data for the ratios that were suggested to us. I spoke with the
director of my department, who in turn spoke with a couple of his finance officers. A phone call
was also made to a finance officer at my bank. Then I talked with Aetna for some advice on
their financial statements and determined from there that other ratios would need to be used.
The conclusions based on our LTP are that Aetna is a pioneer in the insurance industry
and they are a financially sound company. They have been affected by the recession in recent
years, as noted by the data within their three year trend analysis. In 2013 almost all of their
financial ratios were again trending in the positive direction.