Quiz 8: Assessing firm performance

Andrew invested $200,000 in the shares of a company. At the end of a year, he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares. However, if Andrew had invested the same amount on an asset, like gold, the appreciation in its value would have earned him $10,000 at the end of the year. In this scenario, which of the following is Andrew's opportunity cost?

$10,000

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2000 annually. In this case, the market capitalization is _____.

$3 billion, that is, 30 million shares × $100

_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.

Economic value created

_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).

Fixed asset turnover

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?

For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

The receivables turnover of GD Products Inc. is 13.6 and that of its competitor, AP Goods Inc., is 6.0. What does this financial data primarily imply?

GD Products collects accounts receivables faster than AP Goods does.

Which of the following expressions accurately describes market capitalization (market cap)?

It is the product of the number of outstanding shares and the share price.

_____ are best described as the value of the best forgone alternative use of the resources employed.

Opportunity costs

Which of the following best expresses fixed asset turnover?

Revenue/Fixed assets

After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?

The value (V) the consumer attaches to the dress

Which of the following is an external performance metric?

Total return to shareholders

Unlike financial ratios based on accounting data, total return to shareholders is:

an external performance metric.

In an economic context, strategy for producers is primarily about:

capturing as much of the economic value created as possible.

Economic value creation is best expressed as _____.

consumer surplus plus firm profit

Samantha is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Samantha's _____.

opportunity cost

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.

return on risk capital

Return on risk capital primarily includes:

stock price appreciation plus dividends received over a specific period.