Question 1

In 2006 U.S. airlines performed nearly identically in terms of financial results.

Accepted Answer

In 2006, U.S. airlines had varied financial performances due to differences in factors such as fuel costs, labor agreements, and operational efficiencies.

Question 2

Customary performance measures for assessing a strategy should reflect the company's efforts as a whole, be comparable with measures from other companies, and reflect long-term commitments.

Accepted Answer

Customary performance measures should provide a comprehensive view of the company's overall efforts, allow for benchmarking against other companies, and align with long-term strategic goals.

Question 3

Emerging attributes by which we might assess a company's performance go beyond financial measures and include things like environmental sustainability in company operations and societal contributions by the firm.

Accepted Answer

Non-financial measures such as environmental sustainability and societal contributions are increasingly being used to assess a company's overall performance and impact.

Question 4

Strategic performance should be assessed by a balance of customary financial measures and emerging, non-financial measures.

Accepted Answer

Strategic performance assessment benefits from a balanced approach that includes both financial and non-financial measures, as it provides a comprehensive view of an organization's overall performance and long-term sustainability.

Question 5

A normal profit is the minimum return earned by a firm that is necessary to attract and secure the owners' inputs.

Accepted Answer

Normal profit is the minimum level of profit needed for a company to remain competitive in the market, covering opportunity costs and ensuring that resources are not better utilized elsewhere.

Question 6

Economic profit is the residual income above normal profit that accrues to those firms in an industry who choose to use a capital structure without any long-term debt.

Accepted Answer

Economic profit is the residual income above normal profit, but it is not specifically tied to a firm's choice of capital structure or the absence of long-term debt. It is the profit after accounting for both explicit and implicit costs, including opportunity costs.

Question 7

Return on equity (ROE) is one of the key performance indicators used by the senior managers of organizations.

Accepted Answer

Return on equity (ROE) measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested, making it a crucial metric for assessing management effectiveness and financial performance.

Question 8

Return on equity (ROE) can be broken down into three other financial measures of performance: Profitability, asset productivity, and financial leverage.

Accepted Answer

The DuPont analysis breaks down ROE into three components: Profitability (Net Profit Margin), Asset Productivity (Total Asset Turnover), and Financial Leverage (Equity Multiplier).

Question 9

Revenue growth is a direct indicator of a firm's ability to pare costs from its operations.

Accepted Answer

Revenue growth indicates an increase in sales or income, but it does not directly reflect a firm's ability to reduce or manage its operational costs.

Question 10

As a measure of performance, revenue growth typically occurs in lockstep with growth in profitability; i.e., as revenues increase dramatically so does profitability for nearly all firms.

Accepted Answer

Revenue growth does not always lead to profitability growth, as increased revenues can be offset by higher costs, investments, or inefficiencies.

Question 11

We define common stock returns--a common measure of performance--as the dividend paid per share of stock divided by the price of the stock at a given time.

Accepted Answer

Common stock returns are typically defined as the sum of dividends received and the capital gain (or loss) from the change in stock price, divided by the initial stock price, not just the dividend divided by the stock price.

Question 12

Market capitalization is calculated as the number of shares outstanding times the current market price per share of stock.

Accepted Answer

Market capitalization is determined by multiplying the total number of a company's outstanding shares by the current market price of one share.

Question 13

Strategic financial analysis is able to show us what companies are really doing regardless of what they say they are doing.

Accepted Answer

Strategic financial analysis involves examining financial statements and other data to understand a company's true financial health and performance, which may differ from what the company publicly claims.

Question 14

Common-sized financial statements have been reworked (using the original entries) to fit a standard format that has been developed by a major accounting firm.

Accepted Answer

Common-sized financial statements are standardized by expressing each line item as a percentage of a base figure, not by reworking entries to fit a format developed by an accounting firm.

Question 15

A fine-grained examination of financial statements can illustrate different approaches to the marketplace.

Accepted Answer

Analyzing financial statements in detail can reveal a company's strategic decisions, such as pricing, cost management, and investment strategies, which reflect its approach to the marketplace.

Question 16

Amazon's decision to build its own warehouses is evident upon close analysis of the trend in its balance sheets.

Accepted Answer

Amazon's balance sheets show significant capital expenditures and investments in property and equipment, indicating a strategic move towards building and owning its own warehouses.

Question 17

Economic logic is the means by which a company seeks to generate a return that is greater than its cost of capital and greater than the returns earned by rivals.

Accepted Answer

Economic logic involves strategies and actions that enable a company to achieve superior financial performance compared to its competitors, ensuring returns exceed the cost of capital.

Question 18

Once a given economic logic has been proven to generate superior returns, all firms in the industry adopt that logic; we do not see a variety of logics being used in any industry that has existed for a reasonable period of time.

Accepted Answer

Industries often exhibit a variety of economic logics due to differences in firm strategies, resources, and market conditions, even if one logic has been proven to generate superior returns.

Question 19

An economic logic dictates nearly all of the details of a strategy for any firm that chooses to operate under that logic.

Accepted Answer

The answer of An economic logic dictates nearly all of...

Question 20

Every industry has developed measures of operating characteristics, or metrics, that show how competitors are faring.

Accepted Answer

Industries often develop specific metrics to evaluate performance and compare competitors, helping businesses understand their standing and make informed decisions.

Quiz 2: Strategy and Performance