Chapter 3.2Chapter 3.2Chapter 3.2Chapter 3.2

Business Growth & ExpansionBusiness Growth & Expansion

Business growth• Merger: a combination of two or

more businesses to form a single firm.

• Reinvestment: business owners can use their profits to update and expand their firms.

Financial Statements• Income statement: a report

showing a business’s sales, expenses, net income, and cash flow for a period of time (monthly, quarterly or yearly.)

• These documents are used to evaluate future reinvestments.

Cash Flow• The sum of net income and noncash

charges, such as depreciation – is the bottom line, a more comprehensive measure of profits.

• Represents the total amount of new funds generated from operations.

Reinvesting Cash Flow• Helps to increase production.• Additional sales• Larger cash flow

Net income• The funds left over after all of the firms

expenses, including taxes, and subtracted from its sales.

• Expenses include: cost of inventory, wages and salaries, interest payments, all other payments firm must make as part of its normal business operations (depreciation).

Growth Through Mergers

• Mergers allow firms to quickly grow in size.

• When two companies merge, one gives up its separate legal identity

• Examples: Chase National Bank and Bank of Manhattan became = Chase Manhattan Bank, later Chase

Types of Mergers• Horizontal:• Vertical: • Activity: create a graphic

organizer that compares the similarities and differences of the two.

Reasons for merging• To grow faster• To become more efficient• To acquire or deliver a better

product• To eliminate a rival• Change image

Conglomerates• A conglomerate is a firm that has at

least four businesses, each making unrelated products and none responsible for the majority of sales.

• Diversification• US decrease but Asia, Korea, Japan

strong.

Multuinationals• International in scope• Manufacturing or service in a

number of countries.• Subject to laws and taxes of each

country.• Examples: General Motors, Royal

Dutch Shell, Sony

• Important because they have the ability to move resources, goods, services, and financial capital across the national borders.

• Transfer new technology and generate new jobs

• Produce tax revenue• Lower-cost of production and

higher-quality outputs that global competition brings