Wheelen, T. L. el at (2018). Strategic Management and Business Policy Globalization, Innovation, and Sustainability 15th Edition. Pearson.
Industry forces that might cause a propitious niche to appear or disappear are fragmentation and consolidation. Fragmentation occurs when a small to medium sized businesses compete for small shares of a market (Wheelen, Hunger, Hoffman & Bamford, 2018). We normally see fragmented industries on the scene for new products. Large firms will not choose to enter this market if the economies are not worth their efforts and that means that barriers will be pretty low for other firms to enter the industry. Once maturity in an industry sets in, fragmentation is replaced by consolidation. This is where larger firms begin to buy out smaller firms and increase market shares. During this time, product standardization is established and the focus is on cost and features. After everything is stabilized, growth will slow down.
When trying to follow a cost leadership and differentiation strategy simultaneously, firms must consider cost, sustainability, and performance when there is no clear strategy. If a firm doesn’t have a clear focus and is working towards too many things at once without a strategy, they are likely to struggle tremendously. This isn’t always the cause however, our text refers to K-Mart as one company that was unsuccessful with trying to adopt the low cost strategy of Walmart and the differentiation strategy of Target. Toyota and Honda are companies that have seemed to do well with executing these strategies simultaneously. Another popular company that seem to have multiple business strategies is Tesla. Tesla’s multi-leveled strategy is focused on different components to meet one goal, which is referred to as innovation capitol (Furr & Dyer, 2019). Innovation capitol refers to Tesla’s goal of becoming one of the best innovation companies in the world.
Wheelen, T.L., Hunger, J.D., Hoffman, A.N., Bamford, C.E. (2018). Strategic Management and Business Policy: Globalization, Innovation, and Sustainability. Pearson.
Furr, N., Dyer, J. (2019, November 19). Lessons From Tesla’s Approach to Innovation. Harvard Business Review. Retrieved from https://hbr.org/2020/02/lessons-from-teslas-approa…
good evening class,
Go to Yahoo Finance, enter a ticker symbol, then click on statistics ad find the beta. What is the beta? What does it tell you about the firm? Now do the same thing for another company and compare the two betas. What do the beta amounts tell you about each firm and its risk level?
I selected Lordstown Motors Co which has a beta of 0.40 and General Motors Company which has a beta of 1.21. The beta indicates how volatile a stock’s price is in comparison to the overall stock market. If the beta is greater than 1, which is the case for General Motors, indicates a stock’s price swings more volatile than the overall market. If the beta is less than 1, the stock’s price is less volatile than the overall market. Per our textbook, a positive beta also means that the stock is exposed to systematic risk. Higher betas imply higher risk premiums, but higher market risk (Bodie, et al., 2018. p. 195).
What is the capital asset pricing model (CAPM)? Discuss this model and its components. How does this model assist in financial decision-making?
The CAPM describes the relationship between the systematic risk and the expected return for assets, particularly stocks. It is a formula that can be used to calculate an asset’s expected return versus its systematic risk. An asset’s expected return refers to the loss or profit that you anticipate based on its anticipated or known rate of return. You figure out the expected return of an asset by multiplying the potential outcomes by the chances that they will occur. The CAPM gives investors a simple calculation that they can use to get a rough estimate of the return that they might expect from an investment versus the risk of the outlay of capital.
Bodie, Z., Kane, A., & Marcus, A. (2018, September 11). Essentials of investments. Retrieved November 11, 2021, from https://www.mheducation.com/highered/product/essen…
CAPM: Capital Asset Pricing Model: CAPM formula: Capital Market Line. (2021). Retrieved November 11, 2021, from https://www.m1finance.com/articles-2/capm-capital-asset-pricing-model/Links to an external site.
Yahoo Finance. (2021). Retrieved November 11, 2021, from https://finance.yahoo.com/lookup/
In investing, beta indicates how volatile a stock’s price is in comparison to the overall stock market. It measures the market risk or volatility, that is, indicates how much the price of a stock tends to fluctuate up and down compared to other stocks. A beta greater than 1 indicates a stock’s price swings more wildly than the overall market. A beta of less than 1 indicates that a stock’s price is less volatile than the overall market. Last, a beta of 1 indicates the stock moves identically to the overall market. With that being said, the ticker symbol I chose was Ford Motor Company (F) and the beta is 1.11. The beta for the market is exactly one. If the mutual fund beta is 1.11, this indicates that, when the benchmark index is up, the fund has performed better than the broad-based index. Many new technology companies have a beta higher than 1. In this case, Ford could considered to have a 10% greater volatility than the market. The other company I chose is Tesla (TSLA), their beta is currently 2.01. That means that the stock is moving twice as much as the market. Although, a company with a higher beta has greater risk and also greater expected returns, that means, TSLA is taking more risk but getting more returns than F.
The Capital Asset Pricing Model (CAMP) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAMP is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital. Investors expect to be compensated for risk and time value of money. The risk-free rate in the CAMP formula accounts for the time value of money. The other components of the CAMP formula account for the investor taking on additional risk. The capital asset pricing model is a relatively simple formula that’s fairly easy to use. Additionally, the CAPM is an important tool for investors when it comes to accessing both risk and reward. It’s also one of the few formulas that accounts for systematic risk.
Team, T. I. (2021, November 11). Using beta to understand a stock’s risk. Investopedia. Retrieved November 12, 2021, from https://www.investopedia.com/investing/beta-gauging-price-fluctuations/.
Staff, M. F. (2016, May 20). Beta. The Motley Fool. Retrieved November 12, 2021, from https://www.fool.com/knowledge-center/beta.aspx.
Kenton, W. (2021, November 11). Capital Asset Pricing Model (CAPM). Investopedia. Retrieved November 12, 2021, from https://www.investopedia.com/terms/c/capm.asp.
Cautero, R. (2021, March 4). The Capital Asset Pricing Model (CAPM), explained. SmartAsset. Retrieved November 12, 2021, from https://smartasset.com/investing/capital-asset-pricing-model.
Yahoo! (2021, November 12). Tesla, Inc. (TSLA) stock price, news, Quote & History. Yahoo! Finance. Retrieved November 12, 2021, from https://finance.yahoo.com/quote/TSLA?p=TSLA&.tsrc=fin-srch.
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