Chapter 3, part 2
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Transcript of Chapter 3, part 2
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Chapter 3, part 2Chapter 3, part 2
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3-2: Business Growth and Expansion
1. Growth Through Reinvestment– Business 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 goods• Cash flow – total amount of new funds a
business generates from operations.
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Income Statement
Sales of goods and services $1,000Less: Cost of goods sold 400
Wages and salaries 250 Interest payments 50 Depreciation
100
Earnings before taxes $200 Less: Taxes at 40% 80
Net Income $120Plus: Depreciation 100
Cash Flow $220
Allows
Stockholder Dividends
Investment in new plant,
equipment and technology
Generates
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2. Growth Through Mergers– Two 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 faster• Become more efficient• Acquire or deliver a better product• Eliminate a rival• Change image
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– Conglomerates• Firm that has at least four businesses, each
making unrelated products, and none responsible for a majority of its sales.
– Multinationals• Corporation that has manufacturing or service
operations in a number of different countries.
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3-3: Nonprofit OrganizationsOrganization that works in a business like way to promote the collective interests of its members rather than to seek financial gain for its owners.
1. Community Organizations- 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.
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2. Cooperatives- Voluntary association formed to carry on some
kind of economic activity that will benefit its members
3. Labor Unions- Organization of workers formed to represent its
members interests in various employment matters
4. Professional Associations- Consists of people in a specialized occupation interested in improving the working conditions, skill levels, and public perceptions of the profession
5. Business Associations- Businesses also organize to promote their collective interests
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6. Government- Many government agencies produce and
distribute goods and services to consumers, giving government a direct role in the economy
- Government owned corporations, such as USPS- State governments provide colleges and
universities, retirement plans, state police- Local governments provide fire and police
protection and schools.- Public Utilities are municipal or investor-owned
companies that offer products such as water, sewerage, and electric service to the public.