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Lernmaterialien für Value Based Management an der LMU München

Greife auf kostenlose Karteikarten, Zusammenfassungen, Übungsaufgaben und Altklausuren für deinen Value Based Management Kurs an der LMU München zu.

TESTE DEIN WISSEN

Is there a correlation between TRS (total return per share) and R&D expenditures (investments)?

Lösung anzeigen
TESTE DEIN WISSEN

Yes, 

Empirical evidence: companies with long term value goals create more value.

--> TRS = value

--> R&D investments = short/long - term value goals


Investments in R&D correlate positively with long-term total returns to shareholders (TRS)

Lösung ausblenden
TESTE DEIN WISSEN

How can you create value for current & future shareholders?

Lösung anzeigen
TESTE DEIN WISSEN
  • No actions that increase today’s share price but reduce future prices
    --> e.g. reducing product quality increases today's share price but lowers future one
  • Not focusing on growth at the expense of returns
    --> e.g. Wework wanted to grow fast and lost returns by renting offices cheaper than they costed
Lösung ausblenden
TESTE DEIN WISSEN

How is the fast-grow strategy by start-ups called?

Lösung anzeigen
TESTE DEIN WISSEN

Blitz scaling


Lösung ausblenden
TESTE DEIN WISSEN

What benefits does a long-term perspective on value creation offer for companies? For the economy?

Lösung anzeigen
TESTE DEIN WISSEN

1. For companies:

  • Discourages activities with positive benefits in the short term and negative in the long
    term.
  • Encourage activities that create long term value.

2. For the economy:

  • Firms tend to engage in a higher level of corporate responsibility, e.g., they increase employment and the economy is more robust.
Lösung ausblenden
TESTE DEIN WISSEN

Why is maximizing current share price not equivalent to maximizing long-term value?

Lösung anzeigen
TESTE DEIN WISSEN

E.g., managers could get rid important marketing expenses and claim being more efficient.

--> investors cannot verify the claim.

--> asymmetry in information between managers and shareholders can lead to differences in the stock price in the short term versus long term

Lösung ausblenden
TESTE DEIN WISSEN

When managers and boards of directors evaluate a firm performance, how might focusing exclusively on corporate earnings lead them in the wrong direction?

Lösung anzeigen
TESTE DEIN WISSEN

1. Earnings can be positive and growing but 

return on capital (ROIC) < cost of capital
2. Neglects that value is created only if 

return on capital > cost of capital

Lösung ausblenden
TESTE DEIN WISSEN

Criticism of shareholder view

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TESTE DEIN WISSEN

1. Neglects other stakeholders
   --> True for short term focus

   --> Wrong for long term: no value creation without happy customers, suppliers and employees


2. Inequality and unsustainable growth

   --> If regulation is adequate => only long term shareholder value consistent with e.g., sustainable growth

   --> often based on assumptions that are violated

Lösung ausblenden
TESTE DEIN WISSEN

Examples for social-responsibility initiatives creating long term shareholder value

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TESTE DEIN WISSEN

Best Buy:

investment in female employees reduced women turnover 

and helped female employees build leadership skills that benefit the firm

Lösung ausblenden
TESTE DEIN WISSEN

How can a company best trade-off conflicting interests?

Lösung anzeigen
TESTE DEIN WISSEN

Focus on long-term value creation

=> Best for resource allocation and health of economy

Lösung ausblenden
TESTE DEIN WISSEN

How can a company best trade-off conflicting interests?

Example 1: Employees as stakeholders

Lösung anzeigen
TESTE DEIN WISSEN
  • Employees want more wages
  • If save cost by underpaying employees and not investing in a safe working environment
    => Lower quality employees
        => lower product quality, lower customer demand, reputation damage
        => More injuries, illness and employee turnover
    => more union pressure and higher training costs

Stakeholder approach: 

Treating stakeholders equally well => no guidance for managerial decision making (conflict of interests)


Solution: Shareholder approach

High enough wages to attract quality employees and keep them happy and productive

Lösung ausblenden
TESTE DEIN WISSEN

Is there a correlation between TRS (total return per share) and employment growth?

Lösung anzeigen
TESTE DEIN WISSEN

Yes, 

Companies that created the most shareholder value had the strongest employment growth

Lösung ausblenden
TESTE DEIN WISSEN

What goal maximizes shareholder value?

Lösung anzeigen
TESTE DEIN WISSEN

Maximizing the share price for current and future shareholders


Lösung ausblenden
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Q:

Is there a correlation between TRS (total return per share) and R&D expenditures (investments)?

A:

Yes, 

Empirical evidence: companies with long term value goals create more value.

--> TRS = value

--> R&D investments = short/long - term value goals


Investments in R&D correlate positively with long-term total returns to shareholders (TRS)

Q:

How can you create value for current & future shareholders?

A:
  • No actions that increase today’s share price but reduce future prices
    --> e.g. reducing product quality increases today's share price but lowers future one
  • Not focusing on growth at the expense of returns
    --> e.g. Wework wanted to grow fast and lost returns by renting offices cheaper than they costed
Q:

How is the fast-grow strategy by start-ups called?

A:

Blitz scaling


Q:

What benefits does a long-term perspective on value creation offer for companies? For the economy?

A:

1. For companies:

  • Discourages activities with positive benefits in the short term and negative in the long
    term.
  • Encourage activities that create long term value.

2. For the economy:

  • Firms tend to engage in a higher level of corporate responsibility, e.g., they increase employment and the economy is more robust.
Q:

Why is maximizing current share price not equivalent to maximizing long-term value?

A:

E.g., managers could get rid important marketing expenses and claim being more efficient.

--> investors cannot verify the claim.

--> asymmetry in information between managers and shareholders can lead to differences in the stock price in the short term versus long term

Mehr Karteikarten anzeigen
Q:

When managers and boards of directors evaluate a firm performance, how might focusing exclusively on corporate earnings lead them in the wrong direction?

A:

1. Earnings can be positive and growing but 

return on capital (ROIC) < cost of capital
2. Neglects that value is created only if 

return on capital > cost of capital

Q:

Criticism of shareholder view

A:

1. Neglects other stakeholders
   --> True for short term focus

   --> Wrong for long term: no value creation without happy customers, suppliers and employees


2. Inequality and unsustainable growth

   --> If regulation is adequate => only long term shareholder value consistent with e.g., sustainable growth

   --> often based on assumptions that are violated

Q:

Examples for social-responsibility initiatives creating long term shareholder value

A:

Best Buy:

investment in female employees reduced women turnover 

and helped female employees build leadership skills that benefit the firm

Q:

How can a company best trade-off conflicting interests?

A:

Focus on long-term value creation

=> Best for resource allocation and health of economy

Q:

How can a company best trade-off conflicting interests?

Example 1: Employees as stakeholders

A:
  • Employees want more wages
  • If save cost by underpaying employees and not investing in a safe working environment
    => Lower quality employees
        => lower product quality, lower customer demand, reputation damage
        => More injuries, illness and employee turnover
    => more union pressure and higher training costs

Stakeholder approach: 

Treating stakeholders equally well => no guidance for managerial decision making (conflict of interests)


Solution: Shareholder approach

High enough wages to attract quality employees and keep them happy and productive

Q:

Is there a correlation between TRS (total return per share) and employment growth?

A:

Yes, 

Companies that created the most shareholder value had the strongest employment growth

Q:

What goal maximizes shareholder value?

A:

Maximizing the share price for current and future shareholders


Value Based Management

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