Chapter 3, part 2
- 1. Chapter 3, part 2
- 2. 3-2: Business Growth and Expansion1. Growth Through ReinvestmentBusiness owners can use their profits to update and expand their firms.Keep track of business operations with financial statements.Income statement – report showing sales, expenses, net income, and cash flows over a given period.Net income – profits determined by subtracting all expenses from revenues.Depreciation – gradual wear on capital goodsCash flow – total amount of new funds a business generates from operations.
- 3. Income StatementSales of goods and services $1,000 Less: Cost of goods sold 400 Wages and salaries 250 Interest payments 50 Depreciation 100Earnings before taxes $200 Less: Taxes at 40% 80Net Income $120 Plus: Depreciation 100Cash Flow $220GeneratesInvestment in new plant, equipment and technologyAllowsStockholder Dividends
- 4. 2. Growth Through MergersTwo businesses decide to join together into one business. One of the businesses must give up its separate legal identity, but the name of the new company will often reflect the identities of both.Horizontal Merger – Two firms that produce the same kind of product join forces.Vertical Merger – Companies involved in different stages of manufacturing or marketing join together.Reasons for merging:Grow fasterBecome more efficientAcquire or deliver a better productEliminate a rivalChange image
- 5. ConglomeratesFirm that has at least four businesses, each making unrelated products, and none responsible for a majority of its sales. MultinationalsCorporation that has manufacturing or service operations in a number of different countries.
- 6. 3-3: Nonprofit Organizations Organization that works in a business like way to promote the collective interests of its members rather than to seek financial gain for its owners.Community OrganizationsSchools, churches, hospitals, welfare groups, adoption agencies, etc.
- 7. Many are legally incorporated to take advantage of unlimited life and limited liability.
- 8. Similar to profit-seeking businesses, but do not issue stock, pay dividends, or pay income taxes.
- 9. Revenues are reinvested to further their work.CooperativesVoluntary association formed to carry on some kind of economic activity that will benefit its membersLabor UnionsOrganization of workers formed to represent its members interests in various employment mattersProfessional Associations- Consists of people in a specialized occupation interested in improving the working conditions, skill levels, and public perceptions of the professionBusiness Associations- Businesses also organize to promote their collective interests
- 10. GovernmentMany government agencies produce and distribute goods and services to consumers, giving government a direct role in the economy
- 11. Government owned corporations, such as USPS
- 12. State governments provide colleges and universities, retirement plans, state police
- 13. Local governments provide fire and police protection and schools.
- 14. Public Utilities are municipal or investor-owned companies that offer products such as water, sewerage, and electric service to the public.