Question 1

Variable demand and high gearing may jeopardize the firm's ability to pay interest

Accepted Answer

High gearing (financial leverage) is very unwise when faced with demand variability, as the additional fixed costs of debt payments may threaten the firm's liquidity

Question 2

The governance crisis may stimulate better measurement of corporate performance

Accepted Answer

Governments in many countries are addressing this issue

Question 3

Valuations never rest upon assumptions about customer behaviour

Accepted Answer

Of course they do, as revenue forecasts are a key component of all valuations, and customers are the source of all revenues

Question 4

Developing numerical estimates for valuation purposes is a straightforward exercise

Accepted Answer

Valuation rests upon assumptions of future revenues and futures costs, the estimation of which is far from straightforward

Question 5

Measurement systems are important for diagnostic reasons

Accepted Answer

Good measurement systems facilitate diagnosis

Question 6

Non-financial measures are a critical part of a good measurement system

Accepted Answer

So the chapter argues, and this is the basis of the balanced scorecard approach

Question 7

Value creation is the output of a simple process

Accepted Answer

No, it is the output of a very complex process

Question 8

Shareholder value and firm value are different concepts

Accepted Answer

Most definitely. As mentioned in earlier questions, the value shareholders extract depends on when they buy and when they sell

Question 9

Benchmarking of processes in industries other than one's own is a waste of time

Accepted Answer

No, it is the best way to do 'best of class' benchmarking, although too many firms fail to realize this

Question 10

Innovation measures are rarely used non-financial metrics

Accepted Answer

Innovation metrics are widespread

Question 11

Companies with substantial excess cash flow often diversify wisely and economically

Accepted Answer

Unfortunately they do not, an example of a principal/agent problem in many cases

Question 12

Identifying key drivers of performance is crucial in developing good measurement systems

Accepted Answer

Without this understanding we would not know what to measure

Question 13

There is no unambiguous measure of the value of brand equity

Accepted Answer

While everyone agrees that the value of brand equity is important, there is no established way to measure it

Question 14

The balanced scorecard concept is more easily applied at the corporate level than the business level

Accepted Answer

No, it is much easier at the business level. Corporate-level measures must typical be aggregates of business measures

Question 15

The residual value calculation is one of several weaknesses in net present value calculations

Accepted Answer

True, it is a questionable assumption about value in perpetuity

Question 16

There are many excellent measures of the relatedness and diversity of corporate portfolios

Accepted Answer

Unfortunately there are no good measures of relatedness or diversity

Question 17

Revenue enhancement is a possible synergistic benefit for a multi-business firm

Accepted Answer

Revenue enhancement and/or cost reduction are both possible synergistic benefits in a multi-business firm

Question 18

Corporate dashboards are an outmoded and unnecessary business tool

Accepted Answer

No, they are relatively new, and can provide very useful help to managers

Question 19

Corporate social responsibility measures are used by many large firms

Accepted Answer

Yes they are, and the text gives numerous examples

Question 20

Asset-intensive firms cope well with low operating margins

Accepted Answer

No, they cope poorly. They need high margins to generate decent returns on assets, because their asset base is so great

Quiz 12: Measuring Organizational Performance