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GMATPerp : Measuring the performance of British business

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NandishSS Master | Next Rank: 500 Posts Default Avatar
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GMATPerp : Measuring the performance of British business

Post Sun Sep 03, 2017 6:54 pm
Elapsed Time: 00:00
  • Lap #[LAPCOUNT] ([LAPTIME])
    Measuring the performance of British business in Asia from the late 1800s to the present is difficult. Profits Offer one measure, but collecting and comparing the profits and dividends (shares of profits distributed to stockholders) of thousands of enterprises present problems of data and interpretation. British overseas banks, for example, all maintained large hidden reserves to which transfers were made before published profits were declared. The actual dividends paid to stockholders were subject to factors such as taxation policy or exchange fluctuations or other factors. For example, the high dividends paid in India by many British managing companies in the early 1920s were more a response to stockholders' demands for short-term profit-taking of earnings the companies had retained from the First World War years-coupled with low rates of dividend taxation in India and a highly favorable currency exchange rate for the Indian rupee against British sterling-than the result of spectacularly successful enterprise during the period 1919 to 1921. Comparisons between different industries in different Asian countries present further difficulties.

    Perhaps a more satisfactory measure of business performance is market share. In the late 1800s, British enterprise was dominant in many Asian countries; in Iran as late as the 1920s, the entire modern business sector was under British control. Although it declined at different rates in different countries, by the 1980s British business no longer played such a central role in the market of any Asian country.

    1. The author of the passage mentions reserves in British overseas banks most likely in order to
    (a)point out that published profits are less useful in measuring business success than are dividends
    (b) suggest that many British businesses in Asia were less successful than their published profits indicated
    (c) indicate that data about the profits of various businesses provide more useful information about
    (d) short-term than about long-term performance illustrate the difficulties in drawing conclusions about business success or failure from published profits
    (e) explain the role played by British overseas banks in British business transactions in the twentieth century

    OA : D

    2. The passage suggests which of the following about the high dividends paid in India by many British managing companies
    during the early 1920s?
    (a) They were made possible by the long-term profits gained by British business in India prior to the 1920s.
    (b) They furnish evidence that undermines the accepted view of the results of low dividend-taxation rates on British business in India.
    (c) They were unusually high because the exchange rate was more favorable for the rupee against the sterling than at any other time during the twentieth century.
    (d) They were commensurate with the dividends paid by British managing companies in other Asian countries during the same period.
    (e) They provide a misleading picture of the performance of British business in India from 1919 to 1921.

    OA : E Please explain in detail why not C

    3. The passage is primarily concerned with
    (a) refuting a theory about the performance of British business in Asia
    (b) criticizing a widely used method of collecting data about British business in Asia
    (c) considering ways to evaluate the success of British business in Asia
    (d) discussing the advantages and disadvantages of an approach to studying British business in Asia
    (e) presenting an explanation for certain unique features of British business in Asia

    OA : C Please explain in detail why not E

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    Post Mon Sep 04, 2017 5:26 am
    Quote:
    1. The author of the passage mentions reserves in British overseas banks most likely in order to
    (a)point out that published profits are less useful in measuring business success than are dividends
    (b) suggest that many British businesses in Asia were less successful than their published profits indicated
    (c) indicate that data about the profits of various businesses provide more useful information about
    short-term than about long-term performance
    (d) illustrate the difficulties in drawing conclusions about business success or failure from published profits
    (e) explain the role played by British overseas banks in British business transactions in the twentieth century
    The relevant two sentences can be found early in the first paragraph: Profits offer one measure, but collecting and comparing the profits and dividends (shares of profits distributed to stockholders) of thousands of enterprises present problems of data and interpretation. British overseas banks, for example, all maintained large hidden reserves to which transfers were made before published profits were declared.

    The first sentence tells us that profit/dividend information present interpretation difficulties. The second gives us one reason why: companies where transferring profits to hidden reserves in banks before publishing info about them. So published profits don't necessarily provide an accurate picture of performance. Captured in D

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    Post Mon Sep 04, 2017 5:33 am
    Quote:
    2. The passage suggests which of the following about the high dividends paid in India by many British managing companies
    during the early 1920s?
    (a) They were made possible by the long-term profits gained by British business in India prior to the 1920s.
    (b) They furnish evidence that undermines the accepted view of the results of low dividend-taxation rates on British business in India.
    (c) They were unusually high because the exchange rate was more favorable for the rupee against the sterling than at any other time during the twentieth century.
    (d) They were commensurate with the dividends paid by British managing companies in other Asian countries during the same period.
    (e) They provide a misleading picture of the performance of British business in India from 1919 to 1921.
    The relevant clause: high dividends paid in India by many British managing companies in the early 1920s were more a response to stockholders' demands for short-term profit-taking of earnings the companies had retained from the First World War years-coupled with low rates of dividend taxation in India and a highly favorable currency exchange rate for the Indian rupee against British sterling-than the result of spectacularly successful enterprise during the period 1919 to 1921.

    The high dividends were more a function of an array of temporary variables - short term WWI earnings, low taxation, favorable exchange rate - than of the underlying fundamentals of the businesses in question. This is what E gives us.

    C overreaches: First, it wasn't only the favorable exchange rate that accounted for the high dividends. Moreover, we only know that the exchange rate was highly favorable - we don't know that it was more favorable than it was at any other point in the 20th century.

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    Post Mon Sep 04, 2017 5:40 am
    Quote:
    3. The passage is primarily concerned with
    (a) refuting a theory about the performance of British business in Asia
    (b) criticizing a widely used method of collecting data about British business in Asia
    (c) considering ways to evaluate the success of British business in Asia
    (d) discussing the advantages and disadvantages of an approach to studying British business in Asia
    (e) presenting an explanation for certain unique features of British business in Asia
    You can basically just look at the first sentence of each paragraph to get the gist here. The first sentence of the passage tells us that looking at profits and dividends is an imperfect way to assess the health of British businesses in Asia. The first sentence of paragraph two tells us that looking at market share might be a better way to go about this assessment. Thus, the author is concerned trying to determine how to properly evaluate British business in Asia, or C

    E is far too broad. The point of the passage is how to evaluate British businesses in Asia, not to detail unique features of these businesses- we actually get some variation of the phrase "measuring performance" in the first sentence of both paragraphs!

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