Sometime ago, somebody posted to the following citation to the list. I have checked the source several times, but it seems to be wrong. I tried to find it on the archives, but it doesn't seem to be there. Sloan, Alfred P. 1972. My Years With General Motors, Inc. (Garden City: Anchor Books). 140: "A word on rate of return as a strategic principle of business. I am not going to say that rate of return is a magic wand for every occasion in business. There are times when you have to spend money just to stay in business, regardless of the visible rate of return. Competition is the final price determinant and competitive prices may result in profits which force you to accept a rate of return less than you hoped for, or for that matter to accept temporary losses. And, in times of inflation, the rate-at-return concept comes up against the problem of assets undervalued in terms of replacement. Nevertheless, no other financial principle with which I am acquainted serves better than rate of return as an objective aid to business judgment." 53: "The profit resulting from any business considered abstractly, is no real measure of the merits of that particular business. An operation making $100,000.00 per year may be a very profitable business justifying expansion and the use of all the additional capital that it can profitably employ. On the other hand, a business making $10,000,000 a year may he a very unprofitable one, not only not justifying further expansion but even justifying liquidation unless more profitable returns can be obtained. It is not, therefore, a matter of the amount of profit but of the relation of that profit to the real worth of invested capital within the business. Unless that principle is fully recognized in any plan that may be adopted, illogical and unsound results and statistics are unavoidable." 160: [not verified] Extract of the report presented to the Executive Committee on December 6, 1919. "There are other measures for the running of a business; for example, profit on sales, and penetration of the market, but they do not supersede return on investment." -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael@ecst.csuchico.edu
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