Economic Profit and Firm Objectives

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Questions and Answers

Match the following strategies with their descriptions:

Global strategy = Creating standardized goods for a single marketplace Transnational strategy = Combining global efficiencies with local responsiveness Cost leadership strategy = Competing based on the lowest costs in the industry Differentiation strategy = Offering unique products valued by customers

Match the forms of growth with their definitions:

Internal growth = Investing in one's own structure for production capacity Mergers and acquisitions = Purchasing another firm completely or partially Strategic alliances = Establishing stable agreements between independent firms External growth = Gaining new size by outside means or partnerships

Match the concepts related to creativity and innovation:

Creativity = Combining ideas in a unique way Innovation = Turning creative ideas into useful products Idea generation = The process of generating new ideas Innovation implementation = Applying creativity to develop new processes

Match the types of innovation with their characteristics:

Product innovations = Changes embodied in goods or services Process innovations = Innovations in business conduct Radical innovation = Very new and different solutions Incremental innovation = Minor changes from existing practices Signup and view all the answers

Match the stimulating variables for innovation with their categories:

Structure = The arrangement of an organization's hierarchy Culture = Shared values and beliefs within an organization Human resource practices = Policies affecting employee management Market conditions = External factors influencing business operations Signup and view all the answers

Match the characteristics of an innovative organization:

Idea generation capability = Ability to generate new ideas Implementation focus = Turning ideas into useful products Risk-taking culture = Embracing uncertainty for innovation Customer engagement = Involving customers in product development Signup and view all the answers

Match the competitive strategies with their key aspects:

Cost leadership = Lowest production costs Differentiation = Unique product offerings Focus strategy = Targeting specific market segments Market share strategy = Increasing overall market presence Signup and view all the answers

Match the terms related to market strategies:

Global strategy = Single marketplace focus Transnational strategy = Balance between global and local needs Cost leadership strategy = Lowest industry costs Differentiation strategy = Distinctive product features Signup and view all the answers

Match the following terms with their definitions:

Accounting Profit = Difference between income generated and costs incurred Economic Profit = Reflects the ability to generate future profit Social Responsibility = Management's obligation to improve society’s welfare Profitability = Comparison of accounting profit against financial indicators Signup and view all the answers

Match the following financial indicators with their descriptions:

Return on Equity = Measure of profitability relative to shareholder equity Return on Assets = Measure of profitability relative to total assets Dividends = Payments made to shareholders from profit Equity Market Value = Valuation of a company's equity in the market Signup and view all the answers

Match the following profit concepts to their characteristics:

Accounting Profit = Imprecise and relative concept Economic Profit = Accounts for risk Shareholder Profitability = Comparison across similar companies Maximization = Objective of increasing value for shareholders Signup and view all the answers

Match the following views on social responsibility with their proponents:

Classical View = Focuses solely on maximizing profits Socioeconomic View = Includes societal welfare improvements Stakeholder Theory = Considers interests of all parties affected by a firm Corporate Social Responsibility = Efforts to encourage sustainable business practices Signup and view all the answers

Match the following terms with their calculations:

EPt = Economic Profit for a specific period EMVt = Equity Market Value at the end of period t EMVt-1 = Equity Market Value at the beginning of period t DIVt = Dividends issued during period t Signup and view all the answers

Match the following shortcomings to the concepts they refer to:

Accounting Profit = Measure of past results Economic Profit = Calculated externally by the market Profitability Measurement = Relative comparison Maximization Concept = Associated risks not accounted for Signup and view all the answers

Match the following indicators with their purposes:

Return on Equity = Evaluates firm’s ability to generate profit from shareholders' investments Return on Assets = Indicates efficiency in using assets to generate profits Dividends Yield = Shows returns for shareholders as a percentage of their investment Market Capitalization = Total market value of a company's outstanding shares Signup and view all the answers

Match the following definitions with their corresponding economic indicators:

Maximization of Accounting Profit = Focus on immediate financial gain Value Creation for Shareholders = Increasing share value beyond competition Sustainability = Management of resources for future profit Shareholder Return = Measures total returns to shareholders over time Signup and view all the answers

Match the areas of social responsibility with their descriptions:

Organizational stakeholders = Focus on fair treatment of customers, employees, and investors Natural environment = Responsible management of pollution and ecological impacts General social welfare = Financial contributions to charities and public health Sustainability = Meeting present needs while preserving for future generations Signup and view all the answers

Match the concepts of ethics with their definitions:

Ethics = Personal beliefs about right and wrong Ethical behavior = Conformance to accepted social norms Managerial ethics = Behavior standards guiding individual managers Code of ethics = Formal statement of organizational values and rules Signup and view all the answers

Match the elements of strategy with their functions:

Corporate strategy = Decision-making about business identification and growth Competitive strategy = Determining how to compete effectively Functional strategy = Focus on efficiency within functional areas Mission = Statement defining an organization's purpose Signup and view all the answers

Match the components of SWOT analysis with their categories:

Strengths = Valuable resources and capabilities of the firm Weaknesses = Lack of resources or poor performance areas Opportunities = Positive trends in the external environment Threats = Negative trends in the external environment Signup and view all the answers

Match the types of vertical integration with their characteristics:

Backward vertical integration = Becoming its own supplier Forward vertical integration = Becoming its own distributor Advantages of vertical integration = Coordination and quality control Disadvantages of vertical integration = High costs and inflexibility Signup and view all the answers

Match the diversification strategies with their definitions:

Related diversification = Entering related industries Unrelated diversification = Moving into different businesses Specialization = Focusing on a primary line of business Financial reasons = Pursuing diversification to increase profitability Signup and view all the answers

Match the levels of organizational strategy with their focus areas:

Corporate strategy = Identifying business sectors for operations Competitive strategy = Gaining competitive advantage Functional strategy = Improving efficiency in specific areas Geographical scope = Physical spread of the firm's operations Signup and view all the answers

Match the aspects of managerial ethics with their areas:

How an organization treats its employees = Policies on hiring and wages How employees treat the organization = Confidentiality and conflicts of interest How employees handle customers = Advertising and financial disclosures How employees interact with competitors = Bargaining and negotiation practices Signup and view all the answers

Match the types of strategies with their descriptions:

Vertical integration strategy = Augmenting vertical scope in production Specialization strategy = Increasing primary business offerings Internationalization strategy = Expanding into new countries Horizontal scope = Variety of products offered by a firm Signup and view all the answers

Match the correct terms related to sustainability:

Sustainability = Balancing current and future needs Triple bottom line = Assessing performance on social, environmental, and financial criteria Economic activities = Activities that serve present population needs Long-term goals = Pursuit of societal benefits beyond legal requirements Signup and view all the answers

Match the components of strategic management process with their functions:

Strategic planning = Setting long-term goals Implementation = Executing the strategic plans Evaluation = Assessing the efficacy of strategies SWOT analysis = Identifying strengths, weaknesses, opportunities, and threats Signup and view all the answers

Match the definitions of ethical behavior with examples.

Treating customers fairly = Charging fair prices and respecting warranties Honesty = Providing accurate and complete information Respecting employee dignity = Creating a fair workplace climate Promoting public health = Contributions to health organizations Signup and view all the answers

Match the categories of ethical behavior with their contexts:

Employees treating organization = Honesty and conflict of interest Organization treating employees = Wages and working conditions Employees treating customers = Advertising ethics Organization treating suppliers = Financial disclosures and negotiations Signup and view all the answers

Match the social responsibility areas with examples:

Customers = Fair pricing and respect for warranties Employees = Involving them in decision-making Investors = Transparency in financial practices Natural environment = Reducing harmful emissions Signup and view all the answers

Flashcards

Accounting Profit

The difference between a company's revenue and its expenses, calculated over a specific period, usually a year. It's based on accounting records and reflects past performance.

Economic Profit

The increase in a company's share value over time, taking into account dividends paid to shareholders. It reflects the market's perception of the company's future profitability.

Return on Assets (ROA)

A financial metric that measures how effectively a company generates profit from its assets. It's calculated as net income divided by total assets.

Return on Equity (ROE)

A financial metric that measures how effectively a company uses equity (shareholders' investments) to generate profit. It's calculated as net income divided by shareholder equity.