Question

In smaller, new venture firms, returns are sometimes measured in terms of:

(A) return on assets.
(B) return on equity.
(C) return on sales.
(D) the amount and speed of growth.

Answer 1

New venture firms often measure returns in terms of the amount and speed of growth, as traditional profitability metrics may not apply. They attract early-stage investors by demonstrating potential for rapid expansion and market dominance.

Step-by-step explanation:

When considering how returns are measured in smaller, new venture firms, traditional metrics like return on assets (ROA), return on equity (ROE), or return on sales (ROS) may be less relevant due to the absence of significant sales figures or profits. Instead, new venture firms often measure returns in terms of the amount and speed of growth. This is because early-stage firms typically focus on gaining market share and expanding their customer base, building the foundation for future profitability. Early-stage investors are willing to take large risks, looking for substantial returns from a few successful ventures, knowing many startups may fail. Venture capitalists and early-stage investors provide the essential financial capital needed by these firms, with the understanding that they are investing in potential rather than present profitability. For such companies, demonstrating rapid growth and the potential for market dominance is a way to attract these investments and justify the accompanying risk.