Competitive Advantage and Firm Performance
37 important questions on Competitive Advantage and Firm Performance
What are the 3 Traditional Frameworks to Measure and Assess Firm Performance?
- Shareholder Value Creation
- Economic Value Creation
What are the 2 integrative frameworks which combine qualitative data with qualitative assessments?
- The Triple Bottom Line
What are some Profitability Ratios used in Strategic Management?
ROE - Return On Equity
ROA - Return On Assets
ROR - Return On Revenue
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Profitability Ratios: What is ROIC?
What are the Two Components of which Total Invested Capital consists?
2) Interest-Bearing Debt
Profitability Ratios: ROIC - Rule of thumb
if a firm's ROIC < Cost of capital, it destroys value
Profitability Ratios: ROR
(ROR = first component of ROIC)
ROR can be split up into 3 Financial ratio's
2) R&D expense / Revenue
3) SG&A / Revenue
Financial Ratios (ROR): 1) COGS/Revenue
Financial Ratios (ROR): 3) SG&A/Revenue
What is Working Capital Turnover?
(ROR = second component of ROIC)
Working Capital Turnover can be split into 4 other Ratios:
2. Inventory Turnover
3. Receivables Turnover
4. Payables Turnover
What is Fixed asset Turnover? + Formula
Revenue/Fixed Assets
What are Higher Ratios of Receivables Turnover? + Formula
Revenue/Accounts Receivable
What are Payables Turnover? + Formula
Revenue/Acc Payable
--> A low ratio indicates more efficient management in paying creditors and generating interest-free loans from suppliers.
What are limitations of Accounting Data?
-Historical & backward-looking
- Do not consider off-balance sheet items
- Focus mainly on tangible assets (no longer most important)
What is Risk Capital?
What is Total Return To Shareholders?
It indicates how the stock market views all availablr public information about a firm's past, current state and (mostly) expected future performance.
What is The Efficient-Market Hypothesis?
What is Market Capitalisation? + Formula
Nr of outstanding shares x Share price
What are limitations of shareholder value creation?
2) Overall macroeconomic factors have a direct influence on stock prices
3) Stock prices frequently reflect the psychological mood of investors which can be irrational
What is Economic Value Created?
What is the 'Reservation Price'?
Which 3 Components are needed in calculating competitive advantages?
2) Price (P)
3) Cost (C)
Calculation Competitive Advantages: Value
A consumers WTP(reservation value)
Calculation Competitive Advantages: Cost
What is Consumer Surplus?
(V minus P)
According to the Economic Value Creation Framework, Strategy s about...
2) Capturing as much economic value as possible
What are the two possible pricing options due to the large difference between Value and Cost?
2) Charge the same price as competitors (and gain market share)
What are the Two Types of Opportunity Costs? (Example Entrepreneur)
2) The Cost of Capital (invested in business)
What are the Limitations of Economic Value Creation?
2) The value of a good in the eyes of a consumer changes based on income, preferences, time, etc.
3) To measure firm-level competitive advantage, we must estimate the economic value created for all products/services offered by the firm
What is 'The Balanced Scorecard?
What are the 4 Key Questions of the Balanced Scorecard?
2) How do we create value?
3) What core competencies do we need?
4) How do shareholders view us?
What are advantages of the Balanced scorecard?
- Translate vision into measurable operational goals
- Design and Plan business processes
- Implement feedback and Organisational Learning (to modify and adapt strategic goals)
What are Disadvantages of the Balanced Scorecard?
- Up to the firm's manager to formulate a strategy
- The framework is only as good as the skills of the managers using it
TRIPLE BOTTOM LINE: What are the 3 P's?
People - Social Dimension - ??
Planet - Ecological Dimension - Relationship between businesses and the natural environment
What is a Sustainable Strategy?
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