Value Creation and ROIC Quiz

What is the primary measure of performance in a market economy?

• Earnings per share (EPS)

• Return on equity (ROE)

• Value creation

• Market share

Which two factors primarily drive value creation?

• Revenue and profit margins

• Growth and return on invested capital (ROIC)

• Market share and cost of capital

• Dividends and stock price

What does the "conservation of value" principle state?

• Value is created through financial engineering.

• Value is conserved unless cash flows are increased.

• Value is created by increasing market share.

• Value is conserved by reducing costs.

Which of the following is NOT a driver of value creation?

• Revenue growth

• Return on invested capital (ROIC)

• Cost of capital

• Stock price volatility

What is the key value driver formula used to calculate value?

• Value = Earnings × P/E ratio

• Value = Free Cash Flow / (WACC - Growth)

• Value = Revenue × Profit Margin

• Value = ROIC × Growth

Which of the following is true about growth and ROIC?

• Growth always creates value, regardless of ROIC.

• High ROIC with low growth creates more value than high growth with low ROIC.

• Growth destroys value if ROIC is below the cost of capital.

• ROIC is irrelevant if growth is high.

What is the primary risk factor in valuation?

• Market share

• Cost of capital

• Revenue growth

• Investor expectations

What is the "expectations treadmill"?

• A tool for measuring investor expectations.

• The phenomenon where companies must continuously meet rising investor expectations.

• A method for calculating ROIC.

• A strategy for increasing market share.

Which of the following is NOT a component of total returns to shareholders (TRS)?

• Dividend yield

• Change in share price

• Earnings growth

• Change in P/E ratio

What is the main challenge of the expectations treadmill?

• It makes it easier for companies to outperform.

• It creates pressure to meet ever-increasing expectations.

• It reduces the importance of ROIC.

• It eliminates the need for growth.