The Risk for Firms That Follow the Unrelated Diversification Strategy

question 72

Multiple Choice

The risk for firms that follow the unrelated diversification strategy in developed economies is that:

• A) external investors tend to dump the stocks of conglomerates during economic downturns.
• B) conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death.
• C) government regulations, especially in Europe, have periodically forced the dissolution of conglomerates.
• D) competitors can imitate financial economies more easily than they can replicate the value gained from the economies of scope developed through operational relatedness and corporate relatedness.

Understand the implications of mental incapacity and intoxication on contract formation and enforcement.

Recognize the legal differences in handling contracts involving emancipated minors versus those who are not.

Understand the importance of express and implied ratification in validating a contract.

Grasp the legal responsibilities and limitations of guardians in managing contracts for their wards.

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Definitions:

Common Size Analysis

An accounting method that expresses each line item on a financial statement as a percentage of a base amount, facilitating comparison across periods and companies.

Ratio Analysis

The examination of financial statements through ratios derived from them, used to assess an organization's financial health, efficiency, and performance.

Intracompany Comparisons

The analysis and comparison of financial and operational data within the same company over different periods or segments.

Intercompany Comparisons

The evaluation and comparison of financial and operational metrics across different companies within the same industry or sector.