strat management ch 5 tb
risk capital includes
stock price appreciation plus dividends received over a specific period.
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
What are the three financial ratios that constitute return on revenue?
- COGS / Revenue - R&D / Revenue - SG&A / Revenue
Should a firm ideally have a higher or a lower ratio of payables turnover?
- low ratio = efficient in paying creditors - high ratio = inefficient in paying creditors
The working capital of a small home-based business is $200,000. The revenues generated account to $600,000, and the profits incurred are $300,000. What would be the company's working capital turnover?
3, 600,000/200,000
which of the following statements about competitive advantage are true?
Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.
receivables turnover = revenue / AR
Company's efficiency in collecting debts, and extending credit *Higher ratio = more efficient
What do you mean by fixed asset turnover and inventory turnover?
Each of these metrics is a measure of how effective a particular item on the balance sheet is contributing to revenue - fixed asset turnover is how a company leverages its fixed assets to generate revenue - inventory turnover is how a company's capital is tied up in inventory
inventory turnover = cogs / inventory
Firms production cost of merchandise it has sold
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.
cogs / revenue
How efficiently a company can produce a good
payables turnover = revenue / AP
How fast the firm is at paying creditors and how much it benefits from interest free loans from suppliers *Lower ratio = more efficient
SG&A / revenue
How much of each dollar that the firm makes is invested in SG&A expenses
r & d / revenue
How much of each dollar that the firm makes is invested to conduct R&D
fixed asset turnover = revenue / fixed assets
How well a company leverages its fixed assets (particularly PPE)
advantage of the balanced scorecard?
It allows managers to translate a firm's vision into measureable operational goals.
true statement about the balanced scorecard?
It attempts to provide a holistic perspective on firm performance.
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.
an advantage to the triple bottom line approach?
The approach takes an integrative and holistic view in assessing a company's performance.
receivables turnover
_____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.
payables turnover
_____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.
working capital turnover
_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
fixed asset turnover
_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).
return on revenue
_____ precisely indicates how much of a firm's sales is converted into profits.
A high percentage of R&D/Revenue ratio indicates a(n):
a strong focus on innovation to improve current products and servicees
competitive advantage is NOT about
absolute measure
The translation of strategy into action primarily takes place in a firm's _____.
business model
In an economic context, strategy for producers is primarily about:
capturing the economic value created as much as possible
which best describes inventory turnover?
cogs / inventory
Economic value creation is best expressed as _____.
consumer surplus plus firm profit
The fixed asset turnover of a company is 8.3. What do you infer from this?
every dollar spent on fixed assets generates $8.30 in revenue
Economically, what should a firm's strategy focus on?
in an economic context, strategy is about (1) creating economic value and (2) capturing as much of it as possible.
total return to shareholders essentially
indicates how the stock market views all available public information about a firm's past, current state, and expected future performance
competitive advantage goes to the firm that creates the
largest economic value created.
baby boomers
make up oldest cohort of workforce
razor razor blade business model
n the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.
equation for return on revenue
net profit / revenue
Market cap =
number of shares outstanding x share price
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.
return on risk capital
which best describes fixed asset turnover?
revenue / fixed assets
the balanced scorecard is a tool for
strategy implementation, not strategy formulation
an external performance metric?
total return to shareholders
The cost of capital to create a product is a fixed cost because it is:
unaffected by consumer demand
