Exam 2: Goals, Values and Performance

Stock market capitalization offers the best available indicator of the net present value of a firm's future free cash flows.

When comparing the profitability of firms in different industries, it is better to use profit margins on sales rather than profitability ratios based upon balance sheet items (such as return on equity or return on capital employed)?

The biggest problem in designing a performance management system arises as a result of:

The two main categories of real options are growth options and flexibility options.Which of the following investments is not a growth option?

Basing management decisions on economic profit (e.g.Economic Value Added) rather than accounting profit is more important for companies with few fixed assets (such as software companies and consulting firms) than capital-intensive companies such as chemical companies and vehicle manufacturers.

Which of the following activities by Starbucks Inc.is least likely to be an example of Michael Porter and Mark Kramer's "shared value creation":

Firms are often constrained from pursing goals other than profit maximization by the pressure of competition and threat of acquisition.

Michael Porter and Mark Kramer's notion of "shared value" reconceptualizes CSR (corporate social responsibility) by emphasizing:

Maximizing enterprise value and maximizing shareholder value are closely linked because:

In practice, pursuing stakeholder interests and pursuing shareholder interests are identical since in order to make profits a firm must satisfy all its stakeholders.

The two processes through which firms create value are:

Profit and value of the firm are two concepts which are:

The Balanced Scorecard is a technique of performance management that establishes and monitors four dimensions of performance:

A "phases and gates" approach to new product development is an example of a business process designed to create option value.

The main difference between accounting measures of firm performance and stock-market measures of firm performance is:

For the purposes of strategy analysis, it is convenient to view business strategy is primarily a quest for:

Because profit is defined by accounting rules and measured in financial statements, profit maximization is an unambiguous performance goal for a firm.

If a firm is to achieve superior profit performance, it is essential that profitability targets are set for managers.If managers focus on the drivers of profitability rather than profitability itself, their efforts will be diffused.

The balanced scorecard is a useful tool for setting and monitoring performance targets for firms that pursue stakeholder goals; it is less useful for firms that seek to maximize profits over the long term.

In most continental European countries, company law requires boards of directors to ensure that their companies operate primarily in the interests of shareholders, while in most English-speaking countries are required to take account of employees, society, and the interests of the company as a whole. {See 37]