Module 3

Question 1

a low growth company with a high RNOA may be underperforming because it is underinvesting in growth opportunities that are sufficiently profitable

Answer 1

RNOA trap

Question 2

a high growth company with low RNOA may be underperforming because it is overinvesting in growth opportunities that are not sufficiently profitable

Answer 2

growth trap

Question 3

____ is created/destroyed when _____ is higher/lower than the cost of invested capital.

Answer 3

Value, RNOA

Question 4

Empirical benchmarks can be based on ___ (2).

Answer 4

1. comparable companies that face similar R/Os, use similar accounting methods, etc.
2. large sample data that reflects central tendencies in growth, ROIC and their components

Question 5

In order evaluate performance you need _____.

Answer 5

benchmarks

Question 6

_____ benchmarks are imperfect and non existant

Answer 6

Theoretical

Question 7

We use _____ benchmarks and a common way of doing this is to consider comparable companies

Answer 7

empirical

Question 8

First step when comparing a one company to another?

Answer 8

develop a profile of the company that you want to evaluate and it’s segments