Tag (SQ): EVA

(a) During the past year, the management of Zamco Enterprises faced many challenges, including several customer complaints, loss of some key customers and a high level of employee turnover. At a meeting of the Board of Directors, the Chief Executive Officer presented a report on the financial performance of the company during the period and, in his closing remarks, he said, “Overall, we have done very well, notwithstanding the challenges we faced.” Some members of the Board were not happy with these remarks and accused him of doing a “partial evaluation” of the company.

Required:

(i) Explain FOUR limitations of the use of financial measures for evaluating the performance of the company.

(ii) Describe THREE financial measures and THREE non-financial measures that Zamco Enterprises may use to evaluate its performance.

(b) Innovation can be a major source of competitive advantage of business firms, even though it comes with a burden of cost and uncertainty. Management would have to decide whether it would be a leader or follower in the industry regarding innovation.

Required:

State FIVE competitive advantages associated with being a first mover in product innovation in an industry.