to measure and assess firm performance accounting profitability shareho
Written for
BCOR 460 GLO-BUS
All documents for this subject (1)
Seller
Follow
millyphilip
Reviews received
Content preview
BCOR 460 Exam 1-CH. 5, 6, and GLO-
BUS Exam Solved 100%
CH. 5 - Slides - ANSWER
To measure and assess firm performance: - ANSWER ~Accounting profitability
~Shareholder value creation
~Economic value creation
Integrative frameworks, combining quantitative data with qualitative assessments: -
ANSWER ~The balanced scorecard
~The triple bottom line
Accounting Profitability - ANSWER ~Helps assess competitive advantage
-accurately assess firm performance.
-compare firm performance to competitors / the industry average.
~Standardized accounting metrics
~Form 10‐K statements
~Profitability ratios
-Return of invest capital
-ROE
-ROA
-Return on revenue
Limitations of Accounting Data - ANSWER ~all accounting data are historical and thus
backward‐looking.
~accounting data do not consider off-balance sheet items, such as:
-pension obligations
-leasing obligations
~accounting data focus mainly on tangible assets, which are no longer the most
important.
-innovation, quality, customer experience are important.
Shareholder Value Creation - ANSWER ~shareholders
~risk capital
~total return to shareholders
~market capitalization
Shareholders - ANSWER ~Own one or more shares of stock in a company
~The legal owners of public companies
Risk Capital - ANSWER ~Money provided for an equity share in a company
~Cannot be recovered if the firm goes bankrupt
, Total Return to Shareholders - ANSWER ~Stock price appreciation plus dividends
Market Capitalization - ANSWER ~Dollar value of total shares outstanding
~Number of outstanding shares x share price
Limitations of Shareholder Value Creation - ANSWER ~Stock prices can be highly
volatile.
-Makes it difficult to assess firm performance
~Macroeconomic factors affect stock prices.
-Economic growth or contraction
-Unemployment, interest and exchange rates
~Stock prices can reflect the mood of investors.
-Can be irrational
Economic Value Creation - ANSWER ~The difference between:
-A buyer's willingness to pay for a product / service
-And the firm's total cost to produce it
-The difference between value (V) and cost (C)
~Competitive advantage can be based on:
-Economic value creation because of superior product
differentiation
-A relative cost advantage over rivals
Producer surplus (also called profit) - ANSWER ~The difference between the price
charged (P) and the cost
to produce (C)
Consumer surplus - ANSWER ~The difference between what you would have been
willing
to pay (V) and what you paid (P)
Opportunity Costs - ANSWER ~The value of the best forgone alternative use of the
resources employed
~Example: Opportunity Costs of an Entrepreneur
(1) forgone wages if employed elsewhere
(2) the cost of capital invested in the business
•vs. the stock market
•vs. U.S. Treasury bonds
Limitations of Economic Value Creation - ANSWER ~Determining value for consumers
is not simple.
~The value of a good in the eyes of consumers
changes.
-Based on income, preferences, time, and other factors
•~To measure firm‐level competitive advantage, we
must estimate the economic value created for all
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller millyphilip. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.49. You're not tied to anything after your purchase.
