Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
A) Market volatility makes it difficult to assess firm performance through these measures, particularly in the short-term.
B) These tools fail to indicate how the stock market views all available public information about a firm's expected future performance.
C) These tools measure competitive advantage in absolute terms rather than relative terms.
D) Only the book value of the share prices is taken into account when applying these measures, and not the market value.

Question

Quizplus · Accepted Answer

Stock prices can be highly volatile, making it difficult to assess firm performance, particularly in the short-term. This volatility implies that total return to shareholders is a better measure over the long-term due to the "noise" introduced by market volatility, external factors, and investor sentiment.

Which of the Following Is a Disadvantage of Measuring Firm