Deck 16: Market-Based Management and Financial Performance

Question 1

A combination of market growth and market share growth decreases the number of customers but increases the amount of revenue per customer.

Answer 1

False

Question 2

Return measures of performance are valid indicators of financial health.

Answer 2

True

Question 3

Marketing strategies rarely affect accounts receivable and inventory assets of a company.

Answer 3

False

Question 4

The higher the price-earnings ratio,the greater the risk to investment.

Question 5

Customer satisfaction is considered a forward-looking marketing metric.

Question 6

The financial metric of return on equity has owner's equity as its basis.

Question 7

The customer retention metric acts as a forward-looking metric when it measures the number of customers retained from one year to the next.

Question 8

Shareholder measures of performance are directly influenced by product-market performance and profitability.

Question 9

Economic profit is calculated from the ratio of net profit to the number of shares.

Question 10

________ is the ratio of net marketing contribution to a company's investment in marketing and sales expenses.

A)Gross profit
B)Marketing ROI
C)Return on equity
D)Marketing ROS
E)Market demand

Question 11

The net marketing contribution as a percentage of sales is called the marketing ROI.

Question 12

Service quality affects customer retention and profit in the numerator and accounts receivable in the denominator of the return on assets equation.

Question 13

________ is the amount that is left over after deducting all other business expenses but before deducting interest and taxes.

A)Sales revenue
B)Operating income
C)Net marketing contribution
D)Marketing expenses
E)Gross profit

Question 14

________ provides a measure of marketing profits that demonstrates how much the company's investment in marketing and sales contributes to company profits.

A)Return on equity
B)Marketing ROS
C)Net marketing contribution
D)Marketing ROI
E)Sales-to-assets ratio

Question 15

________ represents the net marketing contribution as a percentage of sales.

A)Return on equity
B)Marketing ROS
C)Gross profit
D)Marketing ROI
E)Market demand

Question 16

Companies cannot enjoy high levels of customer retention without having high levels of customer satisfaction.

Question 17

The only source of positive cash flow is the customer.

Question 18

The higher the marketing ROI,the less productive the company's marketing and sales strategies.

Question 19

A market-based business lays more emphasis on assets and technology than understanding their customers.

Question 20

A company's operating income as a percentage of sales is equal to the ________ minus other expenses as a percentage of sales.

A)gross profit
B)marketing ROI
C)sales-to-assets ratio
D)marketing ROS
E)net marketing contribution

Question 21

________ serves as the basis for the financial metric known as return on equity.

A)Owner's equity
B)Customer's equity
C)Brand equity
D)Value equity
E)Retention equity

Question 22

Calculate the net profit generated by Cabaye Inc.if it obtains a return of 12% from the owner's equity amounting to $675 million.

A)$118 million
B)$8.1 million
C)$562 million
D)$5.6 billion
E)$81 million

Question 23

Calculate the return on assets for Nestor Inc. ,which generates a net profit of $45 million from its assets worth $780 million.

A)57.1%
B)45%
C)28.5%
D)17.5%
E)5.7%

Question 24

A company's return on capital is ________.

A)invested capital divided by net marketing contribution
B)net profit multiplied by invested capital
C)net profit divided by invested capital
D)net marketing contribution divided by invested capital
E)invested capital divided by net profit

Question 25

The customer retention metric acts as a(n)________ metric when it measures the number of customers retained from one year to the next.

A)net contribution
B)forward-looking
C)backward-looking
D)marketing ROI
E)marketing ROS

Question 26

A business's return on sales is ________.

A)sales divided by net marketing contribution
B)net marketing contribution multiplied by sales
C)net marketing contribution divided by sales
D)net profit multiplied by sales
E)net profit divided by sales multiplied by 100%

Question 27

What is the total sales a business should generate if it must obtain a net profit of $125 million at a sales return of 20%?

A)$1.25 billion
B)$250 million
C)$2.5 billion
D)$625 million
E)$750 million

Question 28

A business's return on assets is ________.

A)net profit multiplied by assets
B)net profit divided by assets multiplied by 100%
C)assets divided by net profit
D)net marketing contribution divided by assets
E)net marketing contribution multiplied by assets

Question 29

A company's return on equity is equal to ________.

A)net profit divided by retention equity
B)net profit divided by value equity
C)net profit divided by customer's equity
D)net profit divided by owner's equity
E)net profit divided by company's liability

Question 30

RVP Inc.realizes a net profit of $230 million and the owner's equity amounts to $750 million.Calculate the return on equity for the company.

A)16.5%
B)30.7%
C)7.5%
D)75%
E)23.2%

Question 31

MVB Inc.obtains a return of 9.8% from assets worth $248.5 million.Calculate its net profit.

A)$105.9 million
B)$36.8 million
C)$24.3 million
D)$76.2 million
E)$60.4 million

Question 32

Service quality affects customer retention and profit in the numerator and ________ in the denominator of the return on assets equation.

A)total income generated
B)return on sales
C)customer satisfaction
D)accounts receivable
E)accounts payable

Question 33

Calculate the net profit generated by Toby Inc.for a return of 8.6% from sales of $240 million.

A)$20.6 million
B)$78.4 million
C)$120 million
D)$206 million
E)$12.6 million

Question 34

Calculate the total value of owner's equity of a business if it realizes a net profit of $240 million at a return of 30%.

A)$8 billion
B)$800 million
C)$720 million
D)$7.2 billion
E)$2.4 billion

Question 35

Calculate a business's return on sales when it makes a net profit of $500,000 from sales of $3 million.

A)60%
B)16.7%
C)30.5%
D)50.5%
E)24.8%

Question 36

Mikon Inc.generates a net profit of $64 million from $160 million of invested capital.Calculate its return on capital.

A)4%
B)40%
C)16%
D)61%
E)24%

Question 37

Calculate the return on sales for Matt-Brine Inc. ,which has a net marketing contribution of $450 million and total sales of $800 million.The other expenses,including interest and taxes,amount to $250 million.

A)25%
B)20%
C)30%
D)10%
E)45%

Question 38

A business realizes a net profit of $3 million and a return on assets of 6%.The total assets of the business will be ________.

A)$5 million
B)$20 million
C)$18 million
D)$50 million
E)$36 million

Question 39

The net marketing contribution for Doldrum Inc.is $600 million and its total assets are worth $2 billion.The other expenses,including interest and taxes,amount to $400 million.Calculate the company's return on assets.

A)5%
B)10%
C)15%
D)20%
E)25%

Question 40

Calculate the return on capital of a business whose net marketing contribution is $300 million and total invested capital is $900 million.The other expenses,including interest and taxes,amount to $120 million.

A)40%
B)15%
C)5%
D)30%
E)20%

Question 41

Calculate the PE ratio of a company whose stock price is $86 and earnings per share is $2.4.

A)8.3
B)20.7
C)35.8
D)28.3
E)13.5

Question 42

A company's price-earnings ratio (PE)is ________.

A)stock price divided by earnings per share
B)(stock price multiplied by earnings per share)divided by number of shares
C)stock price divided by (earnings per share multiplied by number of shares)
D)stock price divided by total earnings
E)stock price divided by (total earnings multiplied by number of shares)

Question 43

Explain the three marketing metrics that should be incorporated into every company's financial reporting.

Question 44

Calculate the economic profit generated by a business with a capital cost of 5% for $680 million of capital invested and a net profit of $40 million.

A)$18.5 million
B)$10 million
C)$6 million
D)$35 million
E)$22.5 million

Question 45

A business generates a net profit of $124 million and its return on capital is 12.5%.Calculate the total capital invested into the business.

A)$992 million
B)$860 million
C)$740 million
D)$668 million
E)$532 million

Question 46

Calculate the net profit generated by Key Inc. ,which has a capital cost of 10% for $450 million of capital invested and generates an economic profit of $20 million.

A)$48.5 million
B)$110 million
C)$78.5 million
D)$65 million
E)$135 million

Question 47

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
Mini-Case Question.What is Zitko's PE ratio?

A)42.6
B)35.3
C)26.5
D)15.5
E)7.8

Question 48

The net and economic profits generated by Hoddle Inc.are $320 million and $16 million,respectively,at 8% cost of capital.Calculate the total capital invested.

A)$3.8 billion
B)$5.6 billion
C)$1.25 billion
D)$8.8 billion
E)$840 million

Question 49

Milton-Normand Inc.obtains a return of 13.5% from total invested capital of $790.6 million.Calculate the net profit it generates.

A)$325.3 million
B)$159 million
C)$84.7 million
D)$233.5 million
E)$106.7 million

Question 50

A business has 75 million shares and its net marketing contribution is $550 million.The other expenses,including interest and taxes,amount to $280 million.Calculate the earnings per share for the business.

A)$2.4 per share
B)$6 per share
C)$1.2 per share
D)$3.6 per share
E)$4.8 per share

Question 51

Kindest Inc.generates a net profit of $345.1 million from 17 million shares.Calculate the earnings per share of the company.

A)$20,300 per share
B)$2,030 per share
C)$203 per share
D)$2.3 per share
E)$20.3 per share

Question 52

Rondon Inc.has 48 million shares outstanding with an earnings per share of $5.6.Calculate the net profit it generates.

A)$480 million
B)$268.8 million
C)$634.8 million
D)$345.4 million
E)$196 million

Question 53

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
Mini-Case Question.What is the company's net marketing contribution?

A)$640.2 million
B)$538.5 million
C)$458 million
D)$294.6 million
E)$367.5 million

Question 54

Earnings per share is ________.

A)invested capital divided by number of shares
B)net marketing contribution multiplied by number of shares
C)net marketing contribution divided by number of shares
D)net profit divided by number of shares
E)net profit multiplied by number of shares

Question 55

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
Mini-Case Question.Calculate the earnings per share of Zitko Inc.

A)$2.5 per share
B)$1.7 per share
C)$3.8 per share
D)$4.5 per share
E)$6 per share

Question 56

The economic profit generated by a company is its ________.

A)(capital x cost of capital)/ net profit
B)net profit / (capital x cost of capital)
C)net profit + (capital x cost of capital)
D)net profit - (capital x cost of capital)
E)(capital x cost of capital)- net profit

Question 57

Explain the three shareholder metrics used in market-based management.

Question 58

Calculate the number of shares held by a business if it earns $8.8 per share and generates a net profit of $136.4 million.

A)45 million
B)24.6 million
C)15.5 million
D)36.2 million
E)8.8 million

Question 59

Calculate the cost of capital of Grantz Inc.when the net and economic profits generated by the company are $180 million and $24 million,respectively,and the total invested capital is $940 million.

A)24.3%
B)20.5%
C)12.2%
D)8.5%
E)16.6%

Question 60

Calculate the economic profit generated by a business with a capital cost of 10% for $2 billion of capital invested.Its net marketing contribution is $450 million and its other expenses,including interests and taxes,amount to $200 million.

A)$250 million
B)$200 million
C)$50 million
D)$100 million
E)$150 million