BUS 491 Chapter 5

Economic value creation is calculated as ______.

the sum of consumer and producer surplus

When competitive advantage is assessed from an analysis of publicly available data, a firm measures its ______.

Accounting profitability

The three Ps of the triple bottom line are_____ ,_____ , and______.

Profits, people, planet

From the view of a shareholder, the measure of competitive advantage that matters most is return on ______.

Risk capital

What is true about shareholders of a public company?

They can be individuals or organizations.

What is shareholder capitalism?

an economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital

In order to ensure that a firm is implementing the triple-bottom-line approach successfully, managers must ______.

audit the company's results in fulfilling its social and ecological obligations

When a firm goes bankrupt, shareholders ______.

cannot recover their risk capital

Public companies are required by law to release detailed accounting data, which enables ______.

comparative analysis of firms

Compared to the past, the importance of firms' intangibles has increased. Therefore the importance of a firm's book value has ______ as part of the firm's total stock market valuation.

decreased

Economic value created is the ______ the cost to produce a product/service and the amount the buyer is willing to pay for it.

difference between

The difference between the cost of producing a product and the price consumers are willing to pay for that product is known as ______.

economic value created

To measure firm-level competitive advantage, a company must ______.

estimate the economic value created for all products and services offered by the firm

Many strategy scholars argue that the value of public stock companies is too narrowly defined in terms of ______, leading to scandals and economic crises.

financial performance

A balanced scorecard is a tool for strategy ______.

implementation

A public stock company is considered by law to be an entity with legal rights and obligations. This is known as ______.

legal personality

If a firm has a successful ______ strategy, its product will have a higher perceived value and the firm will have a competitive advantage over a competitor that creates a product at equal cost but with a lower reservation price.

product differentiation

Another name for producer surplus is ______.

profit

The subjectively determined maximum amount a customer would pay for a product is its ______ price.

reservation

Because external factors create volatility in stock prices, a better measure of a firm's performance over the long term is the ______.

total return to shareholders

Investors in a company are mostly concerned about the company's ______.

total return to shareholders

Which of the following are true of a firm's book value? -It is based on future valuations of a firm. -Its importance has declined over time. -It captures the historical cost of a firm's assets. -It is calculated as costs of assets minus accumulated depreciation.

-It is calculated as costs of assets minus accumulated depreciation. -It captures the historical cost of a firm's assets. -Its importance has declined over time.

What are things that strategic leaders must keep in mind regarding firm strategy and competitive advantage?

-No single "best" strategy for measuring firm performance exists, only "better" strategies. -Evaluations of a firm's strategy should consider both qualitative and quantitative performance dimensions. -Competitive advantage is best measured on the basis of overall firm performance rather than on specific department performance.

Which statements about stock market valuations are true? -Stock market valuation is equal to the number of outstanding shares multiplied by the share price. -Investors generally take a poor view of stock market valuation because it includes all shares in its calculation. -Stock market valuation is the estimated increase in a stock's value during the next fiscal year. -Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage.

-Stock market valuation is equal to the number of outstanding shares multiplied by the share price. -Viewed over the long term, stock market valuation is a useful metric for assessing competitive advantage.

Which of the following are considered disadvantages of the shareholder value creation approach? -Stock prices are influenced by the psychological mood of investors. -Stock prices can be highly volatile. -Overall macroeconomic factors have a direct bearing on stock prices. -The approach takes into account the past and present as well as future expectations.

-Stock prices are influenced by the psychological mood of investors. -Stock prices can be highly volatile. -Overall macroeconomic factors have a direct bearing on stock prices.

Which of the following correctly describe the information used for comparing the performance of public companies based on accounting profitability? -The information must be purchased from private investment banks. -The information is filed in a 10-K report. -The relative performance is evaluated using standardized financial metrics. -The information is derived from such data as income statements and balance sheets.

-The information is filed in a 10-K report. -The relative performance is evaluated using standardized financial metrics. -The information is derived from such data as income statements and balance sheets.

Which of the following statements is true about a firm's stock price? -The price is calculated exactly from the firm's accounting profitability. -The price tends not to reflect accounting profitability. -The price is not correlated with the firm's economic value creation. -The price determines in part the stock's market valuation.

-The price determines in part the stock's market valuation.

Milton Friedman's conclusion that the primary objective of the firm is to maximize profit rests on which three fundamental assumptions? -The primary goal of society should be individual freedom. -Maximizing profits does not impact societal welfare. -Managers are agents of shareholders. -Free markets are perfectly efficient.

-The primary goal of society should be individual freedom. -Managers are agents of shareholders. -Free markets are perfectly efficient.

Which statements correctly describe the ESG criteria? -They evaluate firms on standards that go beyond financial results. -They help firms clearly identify the best sustainable strategy. -They include environmental, social, and governmental aspects. -They identify customers as the most important stakeholders.

-They evaluate firms on standards that go beyond financial results. -They include environmental, social, and governmental aspects.

Which of the following are standard performance dimensions for a company? -a firm's accounting metrics -how a firm's mission statement relates to its strategic intent -how much economic value a firm generates the fixed and variable costs -how much shareholder value a firm creates

-a firm's accounting metrics -how much shareholder value a firm creates -how much economic value a firm generates the fixed and variable costs

In their annual filing with the Securities and Exchange Commission, public companies in the United States must report which of the following? -benchmarks -expected share prices in the next fiscal year -the total return to shareholders -the return for each individual shareholder

-benchmarks -the total return to shareholders

What are the three defining problems faced by capitalism today according to strategy scholar Rebecca Henderson? -climate change -beleaguered institutions -unmotivated workers -economic inequality

-climate change -beleaguered institutions -economic inequality

Which of the following are among the standard dimensions for measuring competitive advantage? -economic value -accounting profitability -consumer surplus -shareholder value

-economic value -accounting profitability -shareholder value

According to the efficient-market hypothesis, information about which of the following is embedded in a stock price?

-expectations of the firm's future performance -a firm's current state -a firm's past

The balanced scorecard framework draws from which of the following? -from external metrics only -from the same metrics applied to internal resources and the external environment -from multiple internal and external performance metrics -from internal metrics only

-from multiple internal and external performance metrics

The balanced scorecard framework enables managers to do which of the following? -implement feedback and organizational learning -analyze their competitors' strengths in the market -translate the strategic vision into operational goals -communicate and link the strategic vision

-implement feedback and organizational learning -translate the strategic vision into operational goals -communicate and link the strategic vision

For a balanced scorecard to be effective, managers must do which of the following? -manage objectives according to the balanced-scorecard approach -translate their strategy into measurable objectives -formulate an effective strategy for achieving competitive advantage -create a way to involve shareholders in implementation of the balanced scorecard -need to be aware that a failure to achieve competitive advantage is only a reflection of a poor framework

-manage objectives according to the balanced-scorecard approach -translate their strategy into measurable objectives -formulate an effective strategy for achieving competitive advantage

Which of the following are offered by a balanced scorecard? -measures of internal processes -operational measures on customer satisfaction -ways to avoid opportunity costs -common financial metrics

-measures of internal processes -operational measures on customer satisfaction -common financial metrics

What are considered off-balance sheet items?

-pension obligations -operating leases

Which of the following are among the most commonly used metrics for comparing the performance of different companies? -return on revenue -return on assets -return on strategic intent -return on invested capital -return on equity

-return on invested capital -return on equity -return on revenue -return on assets

Which of the following dimensions make up the triple bottom line?

-social -ecological -economic

Which of the following frameworks work to provide a more holistic perspective on firm performance? -economic value created -triple bottom line -accounting profitability -balanced score card

-triple bottom line -balanced score card

What are the four characteristics of a public stock company that make it an attractive corporate form?

1. Limited liability for investors. 2. Transfer-ability of investor ownership. 3. Legal personality 4.Separation of legal ownership and management control.

The economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital is called ________ ________.

Shareholder, Capitalism

According to ______ theory, a firm exists within an interconnected network of constituencies, both inside and outside the organization, and the firm is responsible to these constituencies.

stakeholder capitalism

When managers analyze a wide variety of internal and external performance metrics in order to set financial and strategic goals, they often turn to a framework known as ______.

the balanced scorecard

What is a public stock company's top level of hierarchy?

the state charter

The most a consumer is willing to pay for a product is equivalent to the product's _____.

total perceived consumer benefits