Analysis Intermediate: Weighing Management Quality

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Which of the following signs may indicate that company directors are motivated to look out for the firms long-term interests?
Choose wisely. There is only one correct answer.
They own many shares of the company. If a director has a significant stake (in terms of his or her personal wealth) in the shares of the firm, we think this is the best sign that he or she will look out for the long-term interests of the firm.
2.
Investors should look for companies that _______.
Choose wisely. There is only one correct answer.
Have set clear goals for measuring progress. Good measurement is good management.
3.
The chief executive officer is accountable to _______.
Choose wisely. There is only one correct answer.
The board of directors. The chief executive officer is accountable to the board of directors, who, in turn, represent (and are elected by) the shareholders of the company. This is the primary reason we object to companies in which the CEO and chairman of the board are the same person--we believe it may lead to situations in which the CEO wields undue influence over the affairs of the board, which should be primarily independent and provide oversight of the CEO.
4.
To learn about a prospective company, stock analysts might interview _______.
Choose wisely. There is only one correct answer.
All of the above. An analyst might interview all of them, and others as well, such as suppliers.
5.
A great way to reward managers for building a successful business is to _______.
Choose wisely. There is only one correct answer.
Pay them a reasonable salary and a bonus tied to company profits. We like to see executive pay, in any form, tied to the operating and financial performance of the company. The best way to motivate executives is to pay them a reasonable salary (maybe even a "low" salary) and give them the opportunity to earn a significantly higher amount in the form of a bonus. Tying executive compensation to the stock price creates a perverse, short-term incentive for managers to say good things in public about the company rather than focus on making the company run better.