VALUATION: MEASURING AND MANAGING THE VALUE OF COMPANIES, UNIVERSI...
case of industries that enjoy relatively
long product life cycles. Unfortunately,
the converse is also true: if a company
earns a low ROIC, that is likely to persist
as well.
Review Questions
1. From a value-creation perspective,
is it more important for a company
to know where to compete or how
to compete? That is, is it more
important to play in the right
markets or to be the best player in
your current markets?
2. Identify and discuss real examples
of companies with a competitive
advantage based on customer lock-
in as opposed to product innovation.
Which type of competitive advantage
do you expect to sustain a high ROIC
for a longer time?
3. Why do companies operating
within the pharmaceutical and
biotechnology industries typically
sustain higher ROICs than firms
in the hardware and equipment
industries?
4. Why are competitive advantages
based on brands, as in the consumer
goods industry, often more
important for long-term value
creation than advantages based on
product quality or innovation?
5. Discuss potential explanations for
the increase in median ROIC and the
widening of the distribution of ROICs
across all companies over recent
decades.
Learning reading speed
16