1. Business owners can use profits to reinvest in their businesses through updating equipment and expanding operations. They track finances with statements like income statements and cash flow statements. 2. Businesses can also grow through mergers, where two companies join together legally. Reasons for merging include growing faster, becoming more efficient, acquiring new products, eliminating rivals, or changing image. 3. Nonprofit organizations also have business-like operations but are formed to promote collective interests rather than make profits. They include community groups, cooperatives, labor unions, and professional associations.

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 $1,000Less: Cost of goods sold 400 Wages and salaries 250 Interest payments 50 Depreciation 100Earnings before taxes $200 Less: Taxes at 40% 80Net Income $120Plus: 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.