Goals, Values, Performance

MATIAS, FIONA MARIE A.
3BSAIS-1
Self‐Study Questions
1. Since long‐run profitability requires that a firm is sensitive to the
interests of its customers, employees, suppliers, and society‐at‐large,
whether a firm is run in the interests of its shareholders or its
stakeholders makes no real difference. Do you agree? Are there
situations where shareholder and stakeholder interests diverge?
 Yes, I agree that there is really not much difference whether the firm is run
in the interest of either its shareholders or stakeholder and yes, there are
situations that their interests diverged.
The shareholders wish is to produce more profits for the owners while the
stakeholders believes that the firm must operate in the interests of all its
constituent groups (e.g. society as a whole, employees, customers, etc.),
which is more complicated since they will be considering many
components, thus resulting to many objectives which may lead to no
results at all.
However, no matter how diverge their interest are, at the end of the day
these two will meet in the middle for them to build a strategy that the firm
will benefit the most. Besides, the main goal of every firm is to survive in
the industry they’re in as long as they can so they will need to put aside
their own benefits if they want the firm to last long and stand amongst
their competitors.
2. Table 2.1 compares companies according to different profitability

measures.
1. Which two of the six performance measures do you think are

the most useful indicators of how well a company is being
managed?
 I think it’s the return to shareholders and the net income. RTS since
technically, the management is in charge of creating a value for the
shareholders, thus the greater the RTS, the better the company is being
managed. Also net income because it attracts more investors.
2. Is return on sales or return on equity a better basis on which to

compare the performance of the companies listed?
 For me, return on sales is a better basis of the companies’ performance

because it evaluates the operational efficiency of the firm. A higher return
on sales indicates that the company is earning more profit, meaning to say
the company is growing or improving.
3. Several companies are highly profitable yet delivered very low

returns to their shareholders during 2017. How is this possible?
 This is possible if the company decided to invest for a long term plan
rather than having a short term profits, that’s why instead of maximizing
the shareholder value, they decided to maximize the enterprise value to
increase the profits over the lifetime of the company.
3. With regard to Strategy Capsule 2.2, what additional data would you
seek and what additional analysis would you undertake to investigate
further the reasons for UPS's superior profitability to FedEx?
 A financial statement (e.g. Income Statement) might be a big help to better

analyze why UPS is more profitable than FedEx. By looking at the
expenses and income of both the companies, it is probable to see on what
aspect FedEx is lacking and identify if they are overspending on
something.
4. The CEO of a chain of pizza restaurants wishes to initiate a program

of CSR to be funded by a 5% levy on the company's operating profit.
The board of directors, fearing a negative shareholder reaction, is
opposed to the plan. What arguments might the CEO use to persuade
the board that CSR might be in the interests of shareholders, and
what types of CSR initiatives might the program include to ensure
that this was the case?
 The CEO may use the two arguments to inform the shareholders that
nothing is to be feared about initiating a CSR program. First is the
reputation argument which enhances the firm’s reputation with
consumers and other parties and the other one is the license-to-operate
argument which means that the business firm need the support of the
constituencies because they depend on them. The CSR initiatives that the
program might include are direct philanthropic giving and ethical business
practices, these two is compatible with the given arguments. If explained
thoroughly, the shareholders will understand that initiating a program of
CSR is beneficial to the firm and may become a strength over time.
(https://bizfluent.com/info-8117691-four-types-corporate-social-
responsibility.html)
5. Nike, a supplier of sports footwear and apparel, is interested in the

idea that it could increase its stock market value by creating options
for itself. What actions might Nike take that might generate option
value?
 Technically, stock market value increases if the demand is higher than the
supply. So if Nike wants to increase its stock market value, the option they
have is to buy back their company shares in the open market. By doing
this, the number of their share will decrease, making the stocks more
valuable. This action will generate option value

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MATIAS, FIONA MARIE A.

2. Table 2.1 compares companies according to different profitability

1. Which two of the six performance measures do you think are

2. Is return on sales or return on equity a better basis on which to

 For me, return on sales is a better basis of the companies’ performance

3. Several companies are highly profitable yet delivered very low

 A financial statement (e.g. Income Statement) might be a big help to better

4. The CEO of a chain of pizza restaurants wishes to initiate a program

5. Nike, a supplier of sports footwear and apparel, is interested in the

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