Showing papers on "Profitability index published in 1984"

Unionization and Firm Performance: The Impact on Profits, Growth, and Productivity

Abstract: This paper examines the impact of unionization on profit- ability, growth and productivity using time series data on over 900 product line businesses in the North American manufacturing sector (predominantly U.S.). The first section of the paper develops a simple theoretical framework for studying the effect of the union on firm performance. A key result of this analysis is that information about union wage and productivity effects is not sufficient to permit prediction of the sign (or magnitude) of consequent changes in the rate of return on capital; one must know the parameters of production and demand. Expanding the model to allow for the effects of market structure and alternative bargaining regimes establishes the need to examine several indicators of firm performance in assessing the impact of the union. The empirical analysis reveals sizeable negative union effects on profitability, but growth, productivity and the capital-labor ratio appear to be little affected by unionization in this data. The data are thus consistent with a model of union-firm interaction in which collective bargaining affects the distribution of profits, but leaves real magnitudes unchanged. The evidence suggests, however, that unionization may have longer term implications for efficiency since the impact on profitability appears to fall most heavily on firms with relatively little market power.

Economic Models for R and D Project Selection in the Presence of Project Interactions

Abstract: One reason existing approaches for dealing with benefit interactions in economic R and D project selection models are difficult to apply is that it is difficult to assess the interactions directly. This difficulty can be traced at least in part to the lack of a modeling framework within which different types of interaction can be identified and related to project and portfolio benefit. In this paper, a modeling framework is proposed within which certain kinds of benefit interactions, called present value PV interactions, are assessed indirectly by explicitly modeling R and D project impacts on profitability. Within the proposed framework, the role of traditionally recognized types of interaction in the calculation of present value is clarified, and it is shown that PV interaction exists even when traditionally recognized types of interaction are assumed to be absent. The proposed framework offers one method for assessing PV interactions. An example illustrates the framework and shows that ignoring PV interactions can result in both nonoptimal project selections and resource allocations, even when traditionally recognized types of interactions are absent. The framework and resulting model should be useful in enhancing decision making in firms using PV-based approaches to project selection, whether or not they are interested in using a model that accounts for PV interactions. This is expected since the overall framework provides a basis for analyzing the probable consequences of assuming that no PV interaction is present and for communicating these probable consequences to management

Efficiency and Effectiveness

Abstract: Understanding of the relationship between technical efficiency and effectiveness is crucial for sound managerial planning and decision making. In a world of incomplete information, an operation can be highly efficient in terms of very impressive physical input-output (productivity) ratios, but ineffective in terms of delivering higher-level objectives. For example, a profit making firm can, due to intra-organizational conflicts, produce very efficiently an undesired product or service which will result in poor profitability. Failure to attain minimum profit goals will result in this case in low effectiveness in spite of relatively high productivity. At times, there may even be a trade off between technical efficiency and effectiveness. For example, it may be occasionally easier for the production department to improve productivity by standardizing products at the expense of neglecting customized demands, thereby adversely affecting marketability and profitability. Generally speaking, we can cite numerous examples where efficiency and effectiveness are not necessarily positively correlated. This simply illustrates that both efficiency and effectiveness have to be measured and monitored to improve goal congruency and overall organizational performance.

Accounting and Market-Value Measures of Profitability: Consistency, Determinants, and Uses

Abstract: This study examines the relationship between accounting and market-value measures of profitability for individual firms. Differences in measures of profitability are observed both between and within industry groups and thus cannot be explained by differences in uncontrolled industry-specific influences. We suggest that both accounting and market can be used as unique but imperfect indicators of profitability. Using a LISREL model approach, we find R & D intensity, television advertising intensity, leverage, and industry growth to be important determinants of firm profits.

Accounting ratios to locate take‐over targets

Abstract: This paper uses both the univariate and multivariate techniques to discover whether liquidity, leverage, payout, activity, and profitability ratios can distinguish non-taken-over, domestic taken-over and foreign taken-over firms in Canada. The results indicate that the three categories of firms emanate from the same population, and the article concludes that even if a connection between historical accounting information and the firm's expected cash flows were to be hypothesized, the semi-strong efficient capital market would ensure that accounting information would be impounded in the prices of securities of target firms.

Contextual and Strategic Differences Among Mature Businesses in Four Dynamic Performance Situations

Abstract: Recent empirical studies have presented evidence that contradicts the presumed trade-off between changes in market share and profitability. This research attempted to resolve these inconsistent findings and to examine the conditions under which simultaneous increases in market share and profitability are found Contextual and strategic differences were identified among businesses in four dynamic performance situations.

The Profitability of Wagering on NFL Games

Abstract: A reappraisal of previously suggested strategies for betting on football games using results of the period 1975-1981 casts considerable doubt on the profitability of relying on the past history of games for guidance in placing bets.

A Comparison of Diversifying and Nondiversifying Australian Industrial Firms

Abstract: This paper examines corporate motives for diversification and compares the performance of diversifying and nondiversifying Australian industrial firms. No significant difference appears to exist in...

A Simulation Analysis of Alternative Pricing Strategies for Dynamic Environments

Abstract: The implicit assumption of the classical economic model of price determination is that the firm maximizes short-run profits. However, one of the key implications of strategy research of the past decade is that short-run profit maximization is not an appropriate criterion for many market situations. Instead, market share has been proposed as the key to long-term profitability (see, e.g., Buzzell, Gale, and Sultan 1974; Abell and Hammond 1979). This proposition has had a strong impact on both marketing practice and research. Hopkins (1981) reports that 88% of industrial firms surveyed spell out market share goals in detail. The emphasis on market share in practice has been reflected in the theoretical side also, where numerous market share forecasting and maximizing models have been published. Long-term profitability has also become a research interest in its own right: more than a dozen papers have appeared in major journals since 1975. The impetus to this activity has been the recognition of the existence of intertemporal effects in the environment. For example, on the demand side, a consumer's purchasing in a given time period may preclude purchasing in the future because of the durability of the good or personal inventory loading. On the supply side, added current production early in new product introduction may reduce the cost of future proResearchers of the strategic implications of the well-known demand (e.g., adoption and diffusion) and supply (e.g., experience effects) dynamics have typically sought analytical solutions. Their success in this has been achieved partly by limiting the richness of the dynamics considered. This paper describes a simulation modeling capability, SIMSTRAT, which trades off analytical solutions for richer, more realistic representations of supply and demand. We present the model and then the results of our initial investigations using SIMSTRAT. When joined with new computer graphics capabilities, the model is successful in identifying conditions conducive to skimand penetration-pricing strategies.

Oligopolistic Extraction of a Common-Property Resource: Dynamic Equilibria

Abstract: Publisher Summary The speed with which firms choose to extract a natural resource depends crucially on the value the firms attach to the unextracted resource. Under well-defined property rights, abstracting from imperfections in the final market for the firms' outputs, the firms extracts at the socially optimal rate. When the resource is owned in common and entry into the industry is free, the firms have no incentive to conserve the resource because they know that newcomers to the industry will extract immediately any unit of the resource that can be extracted with immediate profits. When the resource is owned in common but the number of firms is fixed, because each extracting firm must have a lease to the property from which the resource is extracted, the firms have some incentive to conserve the resource: They know that immediate profitability does not necessarily result in immediate extraction by rivals. It does not follow, however, that this incentive to conserve the resource is strong enough to generate a socially optimal extraction rate.

Stagflation and Productivity Decline in Canada, 1974-1982

Abstract: The MACE model of Canada employs a nested production structure in which there is a vintage bundle of capital and energy that is combined with efficiency units of labour to define potential output for given quantities of employed factors. The actual level of output is derived from an estimated utilization-rate equation, in which the ratio of actual to potential output depends on unexpected sales, profitability, and the gap between actual and desired inventories. Using this production structure, it is possible to attribute 30% of the decline in labour productivity between 1973 and 1982, relative to a steady growth case, to desired substitution of labour for energy, one-third to unexpectedly low demand, and one-fifth to low profitability. The unexplained residual is less than one-fifth. The macroeconomic structure of the model is then used totrace the underlying reasons for the differences between steady growth and actual history. It is concluded that most of the changes in factor proportions, demand, and profitability in Canada were due to the changes in world oil prices and the parallel changes in inflation and real output in other industrial countries.

Value Based Strategic Investment Planning

Abstract: The problem faced by every diversified company is determining which businesses to include in its portfolio and how much capital to allocate to each of them. We develop the major principles that make up the value based, or profitability, approach to the problem and then argue that this approach is likely to give better solutions than the product portfolio approach.

Differentiating Entrepreneurs from Small Business Owners: A Conceptualization

Abstract: Much research about entrepreneurs, entrepreneurship, and entrepreneurial ventures may be misleading in its conclusions because of failure to distinguish entrepreneurs from small business owners and managers (although there is some overlap between them). This analysis exxtends Schumpeter's theory of the entrepreneur and distinguishes entrepreneurs and entrepreneurial ventures from small businesses and other business managers in order to better understand the phenomena and improve validity of entrepreneurship research. Possible distinguishing traits are eliminated, including risk-taking, demographic characteristics, attitudinal and behavioral characteristics, and stages of corporate life-cycles. The critical factor is innovation and creating activity. An entrepreneur is defined as "an individual who establishes and manages a business for the principal purposes of profit and growth" and engages in "innovative behavior and will employ strategic management practices in the business." An entrepreneurial venture fits at least one of Schumpeter's categories: the venture's goal are profitability and growth, and the business is characterized by strategic practices. (TNM)

The future of the factory

Abstract: The basic driving force that will determine the future of the factory is likely to be the margin of profitability. In rapidly changing high technology industry the advances in product design will enable them to increase the margin of profitability through increases in the selling price, whereas in more traditional industries it must be obtained by decreasing the total manufacturing cost. Among the most important factors that will affect the manufacturing cost are, in order of importance, information management (which determines the indirect cost), the materials cost, the direct labor cost, and the capital cost. In order to reduce the direct cost, computers will be used extensively to integrate the entire manufacturing system, ranging from design to manufacturing processes to quality control. For computer-integrated manufacturing systems to be effective, more intelligent machines should be developed to minimize the information flow. However, the single most important thing that will always have the most significant effect on margin of profitability, and thus on the factory of the future, will be the ability to make rational decisions during the synthesis of processes and products. The yield of electronic component fabrication processes, the efficiency of mechanical products, the productivity of a factory, and the portability and efficiency of software can be improved when design decisions are evaluated using the synthesis axioms. Therefore, the factory of the future should not only involve computer-integrated manufacturing systems, but also the computers should be provided with intelligence so as to enable them to make correct decisions and aid the decision makers at all levels of industrial hierarchy.

Real Exchange Rates and economic development

Abstract: It is the purpose of this paper to correct some of these shortcomings and to lengthen the time horizon in the public debate about exchange rates, notably about the dollar/DM rate. Long-term interest rates, most of all the real rate of interest and the profitability of investment, will be brought into focus. The hypothesis emerging from this paper is that the dollar is likely to remain strong for fundamental reasons, i.e. for reasons rooted in the real sectors of the American and European economies. Temporary declines for short-term reasons are, of course, not excluded. They should, therefore, not be viewed as disproving the central thesis: what matters in the longer run are the vitality of an economy and its place and role in world economic development.

Productivity Based Management

Abstract: Realization of productivity gains is a necessary condition for long-term consistent improvement in economic well being We have to work smarter and produce more efficiently to attain an ever higher quantity and quality of goods and services without sacrificing leisure This is true for the economy at large as well as for individual firms In a competitive environment, businesses must continuously improve the productivity of their operations in order to sustain and augment profitability and growth This basic requirement may be temporarily obscured by unexpected external developments or financial manipulations, but it is nevertheless essential to the long-term health of any economic enterprise Increasing awareness of the importance of productivity has recently motivated renewed interest in the development and refinement of productivity-based management techniques The purpose of this book is to review and evaluate some of the new contributions in this area The analysis of productivity-based management in this book encompasses planning, decision making and control methods which explicitly incorporate techniques designed to measure, monitor, induce and improve underlying productivity performance in production, financial planning, marketing and international operations These productivity-based methods can easily accommodate built-in efficiency incentives designed to motivate people vii viii PRODUCTIVITY BASED MANAGEMENT working in decentralized organizations toward goal congruent behavior It is argued throughout the book that productivity-based management, at its best, is likely to improve significantly the efficiency and effectiveness of economic enterprises

Is The Relationship Between Market Share and Business Profitability Spurious?: An Empirical Assessment.

Abstract: While previous research on the relationship between market share (MS) and business profitability (BP) has found a positive relationship, its nature (i.e., direct versus spurious) and its context-sp...

Entry, exit and profitability

Abstract: In this paper arguments are set forward explaining the interrelationship between the entry and exit decision. The simultaneous effect of entry and exit on profitability for some Belgian sectors is studied. The empirical results seem to suggest that future research in this area has to take into account the link between entry and exit.

Market structure and performance : the role of international factors in a trade liberalization

Abstract: This paper uses the Chilean manufacturing censuses of 1967 and 1979 to examine the effects of the Chilean reforms in the mid-seventies on market structure and performance. The results show a very large increase in concentration and a slight reduction in profitability after the reforms. These results are then interpreted in the light of hypotheses about the role of potential entrants on market structure and on the pricing behavior of incumbents suggested by the theory of industrial organization. Next, a cross-sectoral simultaneous equations model of the structure-performance relationship is estimated to investigate the contribution of import and export shares in accounting for cross-sectoral variations in concentration and profitability. The statistical analysis confirms that trade liberalization gave rise to a role for foreign trade variables in the determination of profitability with a change in the structural relationship between exports and profitability.

Return to nursing home investment: issues for public policy.

Abstract: Because Government policy does much to determine the return available to nursing home investment, the profitability of the nursing home industry has been a subject of controversy since Government agencies began paying a large portion of the Nation's nursing home bill. Controversy appears at several levels. First is the rather narrow concern, often conceived in accounting terms, of the appropriate reimbursement of capital-related expense under Medicaid and Medicare. Second is the concern about how return to capital affects the flow of investment into nursing homes, leading either to inadequate access to care or to over-capacity. Third is the concern about how sources of return to nursing home investment affect the pattern of nursing home ownership and the amount of equity held by owners since the pattern of ownership and amount of equity have been linked to quality of care.

Industrial reorganisation and coal production in Australia, 1860–1982: an historical materialist analysis

Abstract: From an historical materialist perspective, the essential quality of industrial change is that it is the product of conflict resident both in the relationship of struggle between capital and labour over the accumulation of surplus value and in the competitive relations between individual capitals over the appropriation of profits. This article is essentially methodological in that it identifies the specific competitive and conflictual determinants of profitability internal to an industry and the external influences of the wider economy which contribute to that industry's ‘relative’ profitability vis a vis investment capital. It argues that the emerging pattern of economic change is structured by a tendency towards crisis and declining profitability. The history of black coal production in Australia is examined in the light of this method and emerging theory of industrial reorganisation.

Production and Risk Leveling in the Intertemporal Capital Asset Pricing Model

Abstract: This paper extends Merton's intertemporal capital asset pricing model with multiple consumers to include a description of the supply of traded securities. The production decisions of firms are described in a model with stochastic investment opportunities and incomplete markets. Firms maximize the welfare of their stockholders based on the sum of dollar values placed on the projects by shareholders of the firm. The monetary value to stockholders of a marginal change in the contract structure due to changing firm production is analyzed. In this setting, the competitive market achieves an appropriately defined Nash-Constrained Pareto Optimum. Sufficient conditions for investor unanimity, market-value maximization by firms, and the equilibrium to achieve a Constrained Pareto Optimum and full Pareto Optimum are derived. WHEN A FIRM CHANGES its production plan, it alters the stochastic nature of its future profits and changes the set of available securities. Therein lies the firm's problem for valuing its action if markets are incomplete. Its proposed choice, viewed as a welfare issue, must involve the welfare effects of the new contract structure relative to the original set of contracts as well as profitability at prevailing prices. Such a consideration does not arise in perfect markets since the set of contracts (being always complete) is unchanged before and after any production decision. To illustrate, take the following example from research firms which specialize in R&D in genetic engineering. Investors currently can invest in such a firm, let us say Genentech, and expect returns whose size will be determined by the fortunes of new techniques in gene splicing. Let such firms now remove all of their capital from genetic engineering and invest it in equally valuable stocks such as IBM, and General Motors, and so on. What will be the effect of this on Genentech stockholders? Should they wish to redistribute their portfolio to suit