Chap 5 Flashcards
Shareholder capitalism is an economic system in which the investors who own shares are?
the legal owners of public companies
Shareholders have what on profits?
the most legitimate and dominant claim on profits
What are the assumptions tha exist for shareholders?
(1) free markets are perfectly efficient, (2) individual freedom should be the primary goal of a society, and (3) managers are agents of shareholders
What led to the rise of shareholder capitalism?
(1) climate change, (2) economic inequality, and (3) beleaguered institutions.
Where is CSR focus and what are its roles?
CSR is externally focused, and focuses on firms doing good through philanthropy
What is CSV and where is it focused?
creating shared value (CSV) focuses on creating value for both economic and societal benefits. CSV is internally focused and derives from a deeper purpose.
What are the commonly used profitability metrics?
return on assets (ROA), return on equity (ROE), return on invested capital (ROIC), and return on revenue (ROR)
What do investors primarily care about?
total return to shareholders, which includes stock price appreciation and dividends received
What is economic value creation?
the difference between a buyer’s willingness to pay and the firm’s cost to produce
What are the four key questions used to develop strategic objectives?
how customers view the firm, how value is created, what core competencies are needed, and how shareholders view the firm.
What is related to the triple bottom line framework?
the stakeholder theory
What is a business model?
It’s a story of the value the business will provide to customers, tied to the numbers to show how it will profitably do so.
Most business models that fail, do so because of what?
The Narrative Test and The Numbers Test
What is the narrative test?
Does the story make sense given the interests of all the relevant players (customers, suppliers, employees, etc.)
What is the number test?
Do the numbers add up that we can do this at a profit?
