3-2: Business Growth and Expansion<br />1. Growth Through Reinvestment<br />Business owners can use their profits to update and expand their firms.<br />Keep track of business operations with financial statements.<br />Income statement – report showing sales, expenses, net income, and cash flows over a given period.<br />Net income – profits determined by subtracting all expenses from revenues.<br />Depreciation – gradual wear on capital goods<br />Cash flow – total amount of new funds a business generates from operations.<br />
Income Statement<br />Sales of goods and services $1,000<br /> Less: Cost of goods sold 400<br /> Wages and salaries 250<br /> Interest payments 50<br /> Depreciation 100<br />Earnings before taxes $200 <br /> Less: Taxes at 40% 80<br />Net Income $120<br /> Plus: Depreciation 100<br />Cash Flow $220<br />Generates<br />Investment in new plant, equipment and technology<br />Allows<br />Stockholder Dividends<br />
2. Growth Through Mergers<br />Two businesses decide to join together into one business. <br />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.<br />Horizontal Merger – Two firms that produce the same kind of product join forces.<br />Vertical Merger – Companies involved in different stages of manufacturing or marketing join together.<br />Reasons for merging:<br />Grow faster<br />Become more efficient<br />Acquire or deliver a better product<br />Eliminate a rival<br />Change image<br />
Conglomerates<br />Firm that has at least four businesses, each making unrelated products, and none responsible for a majority of its sales. <br />Multinationals<br />Corporation that has manufacturing or service operations in a number of different countries.<br />
3-3: Nonprofit Organizations<br /> 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.<br />Community Organizations<br /><ul><li>Schools, churches, hospitals, welfare groups, adoption agencies, etc.
Many are legally incorporated to take advantage of unlimited life and limited liability.
Similar to profit-seeking businesses, but do not issue stock, pay dividends, or pay income taxes.
Revenues are reinvested to further their work.</li></li></ul><li>Cooperatives<br /><ul><li>Voluntary association formed to carry on some kind of economic activity that will benefit its members</li></ul>Labor Unions<br /><ul><li>Organization of workers formed to represent its members interests in various employment matters</li></ul>Professional Associations<br />- Consists of people in a specialized occupation interested in improving the working conditions, skill levels, and public perceptions of the profession<br />Business Associations<br />- Businesses also organize to promote their collective interests<br />
Government<br /><ul><li>Many government agencies produce and distribute goods and services to consumers, giving government a direct role in the economy