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Running Head: MODULE ONE 1

MODULE ONE

Module One Critical Thinking Example 2 FIN 500: Principles of Finance Colorado State University-Global Campus Professor Jane Smith July 14, 2013

Formulating the Research Question Worksheet

1. Discover Management Dilemma

Complaints are being made that the team takes too long to create adequate financial reports. The team’s response to this is that the computer software programs are too complicated, and requires hours of manual manipulation, creating the delay. As a manager, Sahari should see that the symptoms of this problem are complicated technology, and that team members possibly lack the adequate knowledge, skills, and abilities to be efficient. Her challenge/dilemma will be to find a way to improve proficiency with the software in hopes that efficiency will also increase.

1a. Exploration

Coelho, J. (2010). Employee skill set certifications: What’s in it for them?. Proceedings of The European Conference on Knowledge Management. 268-278

Morgan, M. (2011). Building skill excellence. Strategic Finance. 92(12). 16-19.

Still searching for the missing management model. (2011). Financial Executive. 27(9). 42-45.

2. Define Management Question

Can better training create a stronger knowledge base that will increase the team’s skill set, and help them to better learn how to efficiently produce needed reports?

3. Define Research Question(s)

How should the training be structured?

How should the knowledge be transferred and shared?

How should the training programs effectiveness be measured?

2a. Exploration

Clements, B. (2007). Improving the employee software training process. Indiana Libraries. 26(4). 45-48.

Gibson, J., Ivancevich, J., Donnelly, J., & Konpaske, R. (2012). Organizations: behavior, structure, processes. (14 ed.). New York: McGraw-Hill Irwin.

Pass the Aspirin. (2013). ABA Banking Journal. 105(2).23.

Module One Critical Thinking

Sahari has received complaints about her team’s inability to deliver reports in a timely manner. When addressed, the team cited complicated software as the primary reason for this. As a manager, Sahari is faced with a dilemma. Although the software may be complicated, there is no evidence in the case study that other teams are having trouble delivering reports on time or that replacing the software throughout the company is a practical solution. This means that Sahari should try to assess if a secondary factor is causing the inefficiency. One possible cause could be that her team lacks the necessary knowledge, skills, and abilities to develop the needed reports using the software. According to the literature, companies often fail to train employees properly on new technology, and consequently lose revenue. The article “Still Searching for the Missing Management Model” states that performance improvement can be triggered by several things including, giving employees the chance to share common experiences or creating a solid foundation within the company that gives employees the resources to improve (Still Searching for the Missing Management Model, 2011). A study done by Coelho (2010), concludes that training and certifications can make employees feel more comfortable with company resources, and increase proficiency. Furthermore, the study states that as companies grow and become more globalized it becomes increasingly important for managers to know how far an employee’s knowledge base stretches, so that they can help team members fill in knowledge gaps through certifications and training (Coelho, 2010). Lastly, the article, “Building Skill Excellence” emphasizes the need for finance professionals to always demonstrate proficiency, because if they cannot then creating value for the client becomes difficult (Morgan, 2011). According to this article, employees should be taught to “take ownership” for their skill sets, and should have the resources needed to improve if they are struggling (Morgan, 2011).

Taking the need for her team to broaden their ability to use the software into account, Sahari could ask the question: Can better training create a stronger knowledge base that will increase the teams skill set, and help them to better learn how to produce the needed reports? A glance at the literature would suggest that the answer to this question is yes. Gibson, Ivancevich, Donnelly, and Konpaske (2012), stress the importance of continual training and performance appraisals as a means to help improve efficiency. In a study done by Clements (2007), the data showed that including employees in the development of the training programs helped these programs to be better accepted by employees, to better fill the gaps of knowledge, and to better increase software usage proficiency. Bank managers interviewed for the article “Pass the Aspirin,” saw an increase in their teams skill set simply by setting up optional trainings for software programs that their banks used, and by directly designating employees that were already proficient in these programs as experts and tasking them with helping other employees to learn efficient methods for using the software (Pass the Aspirin, 2013).

After understanding that training is one way she can solve her team’s low efficiency problem, Sahari needs to ask herself how the training should be structured, how progress should be measured, and how knowledge can be continually shared. If Sahari, were to meet with each member of her team to develop structured training goals, proficiency with the software program would likely increase, employees would feel involved in the training process, and she could determine what skills need to be learned so that she could better structure the training program (Gibson, et. al., 2012). Additionally, each member’s current proficiency level could be assessed, a goal and time line for achieving that goal could be documented, and the tools needed to achieve the goal could be listed and established. It would be very easy to measure progress quantitatively since the team could track the average amount of time report production takes, and use it as an indicator of increased or decreased efficiency as the training progresses. The time it takes for Sahari’s team to prepare a report can also be compared to other team’s time.

To ensure that knowledge gained from these trainings is shared amongst her team, Sahari should consider knowledge management theory. This is a fairly new technique that organizations are trying in order to better train employees and retain knowledge (Salisbury, 2003). Knowledge management is the practice of documenting new ways of doing things or recording solutions to previous problems. In theory, doing this enables an organization or team to grow smarter by retaining the knowledge of its individual employees (Salisbury, 2003). One company that has recently done this is Apple Inc. Prior to his death, Steve Jobs hired former business professors to write case studies on the Apple’s past business success and failures. These case studies are available for employees to study, and training programs are developed around them (Lashinsky, 2011). Most companies do not use knowledge management theory as comprehensively as Apple has done, but many have found value in having a process of their own. For instance, IBM recently created a forum for employees to post solutions to common problems with software. This helps IBM to utilize the knowledge of all of its employees across its international offices, because an employee struggling with a problem can log on to see if anyone other company employee has found a solution to that problem already (IBM reaps rewareds of employees who think on the job, 2006). Since Sahari’s team is complaining that the software used by the company is too complicated, and requires hours of roundabout manipulation it would be good for them to use knowledge management; even if only done on a small scale. Individuals could be asked to record solutions or shortcuts used to accomplish day-to-day work, and all members of the team could access and benefit from this shared knowledge.

References

Clements, B. (2007). Improving the employee software training process. Indiana Libraries. 26(4). 45-48.

Coelho, J. (2010). Employee skill set certifications: What’s in it for them?. Proceedings of The European Conference on Knowledge Management. 268-278

Gibson, J., Ivancevich, J., Donnelly, J., & Konpaske, R. (2012). Organizations: behavior, structure, processes. (14 ed.). New York: McGraw-Hill Irwin.

IBM reaps rewards of employees who think on the job (2006, May 19). Irish Times

Lashinsky, A. (2011, Aug 25). How apple works: Inside the world’s biggest start-up. CNN Money, Retrieved from http://tech.fortune.cnn.com/2011/08/25/how-apple-works-inside-the-worlds-biggest-startup/

Morgan, M. (2011). Building skill excellence. Strategic Finance. 92(12). 16-19.

Pass the Aspirin. (2013). ABA Banking Journal. 105(2).23.

Still searching for the missing management model. (2011). Financial Executive. 27(9). 42-45.

Salisbury, M. W. (2003). Putting theory into practice to build knowledge management systems. Journal of Knowledge Management, 7(2), 128. Retrieved from http://search.proquest.com/docview/230331096?accountid=38569

module one/FIN500_FormulatingtheResearchQuestionWorksheet.docx

Formulating the Research Question Worksheet

1. Discover Management Dilemma

1a. Exploration

2. Define Management Question

2a. Exploration

3. Define Research Question(s)

module one/module one ppt.ppt

Chapter 1

An Introduction
to the Foundations
of Financial Management

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Learning Objectives

Identify the goal of the firm.
Understand the basic principles of finance, their importance, and the importance of ethics and trust.
Describe the role of finance in business.
Distinguish between the different legal forms of business.
Explain what has led to the era of the multinational corporation.

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THE GOAL
OF THE FIRM

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The Goal of the Firm

The goal of the firm is to create value for the firm’s legal owners (that is, its shareholders). Thus the goal of the firm is to “maximize shareholder wealth” by maximizing the price of the existing common stock.

Good financial decisions will increase stock price and poor financial decisions will lead to a decline in stock price.

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FIVE PRINCIPLES
THAT FORM THE FOUNDATIONS OF FINANCE

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Principle 1:
Cash Flow Is What Matters

Accounting profits are not equal to cash flows. It is possible for a firm to generate accounting profits but not have cash or to generate cash flows but not report accounting profits in the books.

Cash flow, and not profits, drive the value of a business.

We must determine incremental or marginal cash flows when making financial decisions.

Incremental cash flow is the difference between the projected cash flows if the project is selected, versus what they will be, if the project is not selected.

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Principle 2:
Money Has a Time Value

A dollar received today is worth more than a dollar received in the future.
Since we can earn interest on money received today, it is better to receive money sooner rather than later.

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Principle 2:
Money Has a Time Value (cont.)

Opportunity Cost – It is the cost of making a choice in terms of next best alternative that must be foregone.

Example: By lending money to your friend at zero percent interest, there is an opportunity cost of 1% that could potentially be earned by depositing the money in a savings account in a bank.

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Principle 3:
Risk Requires a Reward

Investors will not take on additional risk unless they expect to be compensated with additional reward or return.
Investors expect to be compensated for “delaying consumption” and “taking on risk.”
Thus, investors expect a return when they deposit their savings in a bank (ex. delayed consumption) and they expect to earn a relatively higher rate of return on stocks compared to a bank savings account (ex. taking on risk).

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Figure 1-1

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Principle 4: Market Prices
Are Generally Right

In an efficient market, the market prices of all traded assets (such as stocks and bonds) fully reflect all available information at any instant in time.
Thus stock prices are a useful indicator of the value of the firm. Price changes reflect changes in expected future cash flows. Good decisions will tend to increase in stock price and vice versa.
Note there are inefficiencies in the market that may distort the market prices from value of assets. Such inefficiencies are often caused by behavioral biases.

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Principle 5: Conflicts of Interest Cause Agency Problems

The separation of management and the ownership of the firm creates an agency problem. Managers may make decisions that are not consistent with the goal of maximizing shareholder wealth.
Agency conflict is reduced through monitoring
(ex. annual reports), compensation schemes
(ex. stock options), and market mechanisms
(ex. takeovers)

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Discussion: The Current
Global Financial Crisis

What lead to the global financial crisis?
What do we mean by subprime loans?
How are mortgages securitized?
How can the financial crisis be explained by using the five principles of finance?

Review the text

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Ethics & Trust in Business

Ethical behavior is doing the right thing! … but what is the right thing?
Ethical dilemma -- Each person has his or her own set of values, which forms the basis for personal judgments about what is the right thing.
Sound ethical standards are important for business and personal success. Unethical decisions can destroy shareholder wealth
(ex. Enron scandal).

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THE ROLE
OF FINANCE
IN BUSINESS

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The Role of Finance
in Business

Three basic issues addressed by the study of finance:

What long-term investments should the firm undertake? (Capital budgeting decision)

How should the firm raise money to fund these investments? (Capital structure decision)

How to manage cash flows arising from day-to-day operations? (Working capital decision)

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The Role of Finance in Business (cont.)

Knowledge of financial tools is relevant for decision making in all areas of business
(be it marketing, production etc.) and also in managing personal finances.
Decisions involve an element of time and uncertainty … financial tools help adjust for time and risk.
Decisions taken in business should be financially viable … financial tools help determine the financial viability of decisions.

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The Role of the Financial Manager

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THE LEGAL FORMS
OF BUSINESS ORGANIZATION

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The Legal Forms of
Business Organization

Business Forms

Sole

Proprietorship

Partnership

Corporation

Hybrid

S-Type

LLC

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Sole Proprietorship

Business owned by an individual
Owner maintains title to assets and profits
Unlimited liability
Termination occurs on owner’s death or by the owner’s choice

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Partnership

Two or more persons come together as co-owners
General Partnership: All partners are fully responsible for liabilities incurred by the partnership.
Limited Partnerships: One or more partners can have limited liability, restricted to the amount of capital invested in the partnership. There must be at least one general partner with unlimited liability. Limited partners cannot participate in the management of the business and their names cannot appear in the name of the firm.

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Corporation

Legally functions separate and apart from its owners
Corporation can sue, be sued, purchase, sell, and own property
Owners (shareholders) dictate direction and policies of the corporation, oftentimes through elected board of directors.
Shareholder’s liability is restricted to amount of investment in company.
Life of corporation does not depend on the owners … corporation continues to be run by managers after transfer of ownership through sale or inheritance.

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The Trade-offs:
Corporate Form

Benefits: Limited liability, easy to transfer ownership, easier to raise capital, unlimited life (unless the firm goes through corporate restructuring such as mergers and bankruptcies).

Drawbacks: No secrecy of information, maybe delays in decision making, greater regulation, double taxation.

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Double Taxation Example

Assume earnings before tax = $1,000

Federal Tax @ 25% = $250

After tax income available for distribution to shareholders = $750

Compute the taxes if the company chooses to distribute the entire after-tax profits to shareholders as dividends.

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Double Taxation Example

If corporation distributes profits as dividends to shareholders, shareholders will be taxed again.
Assuming dividends are taxed @ 15%

Dividend tax = 15% of $750 = $112.50

==>Total tax = 250 + 112.5 = $362.5 or 36.25%

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Hybrid Organizations:
S-Corporation and Limited Liability Companies (LLCs)

S-Type Corporations
Benefits
Limited liability
Taxed as partnership (no double taxation like corporations)
Limitations
Owners must be people so cannot be used for a joint ventures between two corporations

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Limited Liability Companies (LLC)
Benefits
Limited liability
Taxed like a partnership
Limitations
Qualifications vary from state to state
Cannot appear like a corporation otherwise it will be taxed like one

Hybrid Organizations:
S-Corporation and Limited Liability Companies (LLCs) (cont.)

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FINANCE AND THE MULTINATIONAL FIRM: THE NEW ROLE

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Finance and The Multinational Firm: The New Role

U.S. firms are looking to international expansion to discover profits. For example, Coca-Cola earns over 80% of its profits from overseas sales.

In addition to US firms going abroad, we have also witnessed many foreign firms making their mark in the United States. For example, domination of auto industry by Honda, Toyota, and Nissan.

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Why Do Companies
Go Abroad?

To increase revenues
To reduce expenses (land, labor, capital, raw material, taxes)
To lower governmental regulation standards (ex. environmental, labor)
To increase global exposure

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Risks/Challenges of
Going Abroad

Country risk (changes in government regulations, unstable government, economic changes in foreign country)
Currency risk (fluctuations in exchange rates)
Cultural risk (differences in language, traditions, ethical standards, etc.)

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Review: Key Terms

Agency problem

Capital budgeting

Capital structure decision

Corporation

Efficient market

Financial markets

General partnership

Incremental cash flow

Limited partnership

Limited Liability Company (LLC)

Partnership

Opportunity cost

Sole proprietorship

S-corporation

Working capital management

module one/research 1.docx

Financial managers and leaders of organizations are charged with solving problems every day. To address and solve organizational issues requires structure and frameworks such as theories and concepts that explain what is going on around us. This Critical thinking assignment is designed to help decision makers develop skills associated with framing, articulating, and solving management questions.

Review Page IV and Page V in the Module 1 lecture.

Then complete the Formulating the Research Question Worksheet by following these steps:

· Consider the scenario provided on Page V of the lecture, putting yourself in the place of the financial manager with Sahira as an employee reporting to you.

· Reviewing the symptoms that Sahira’s team describes, formulate a statement that you think describes the management dilemma confronting you. (Worksheet box #1)

· Using the SEU Virtual Library, begin to explore professional journals and select current research articles published within the last five years that are relevant to your management dilemma. Place the APA formatted references for 3-4 relevant articles that you reviewed. (Worksheet box #1a)

· Develop a specific management question that you want answered. (Worksheet box #2)

· Return to the SEU Virtual Library and explore 3-4 additional relevant articles specific to your research question. (Worksheet box #2a.).

· Break down the management question into 2-3 sub-questions. (Worksheet box #3)

Identify a theory that might be relevant to your management question.

· Use your online and SEU Virtual Library resources to identify an organizational, economic, financial, accounting, or other theory that might be relevant to your management and research questions.

· Create a brief history and posits of the theory.

Develop a paper synthesizing the information describing the management dilemma, and the management and research questions substantiated by the 6-8 research articles identified during your exploration. Explain the potential relevance of the theory that you selected. Paper requirements include:

· 300-450 words in length

· Clear, concise academic writing style

· Third person

· Saudi Electronic University academic writing standards and APA guidelines, including title page, citations, double spacing, and references