Business Growth and Expansion

1. Business Growth and Expansion Unit Five, Lesson Three Cook Economics

2. Growth Through Reinvestment • Businesses can take their revenue and subtract out all costs (wages, interest payments, depreciation, taxes, etc) to get their profit (also known as cash flow) • Businesses then have the power to decide what to do with the profit—some may be paid back to owners or given in the form of bonuses to employees; the rest is usually reinvested

3. Growth Through Reinvestment • Reinvestment of profits—putting money back into the company to build more factories, hire more workers, buy more capital, etc—allows firm to produce more and grow

4. Growth Through Mergers • Merger—a combination of two or more businesses to form a single firm • Why? To grow faster to become more efficient, to acquire or deliver a better product, to eliminate a rival, or to change its image

5. Types of Mergers • Horizontal merger—when two or more firms that produce the same kind of product join forces • Vertical merger—when firms involved in different steps of manufacturing or marketing join together

6. Growth Through Mergers • A corporation may become so large through mergers and acquisitions that it becomes a conglomerate. • Conglomerate—a firm that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales

7. Growth Through Mergers • Diversification—one of the main reasons for a conglomerate; keeps company from depending on one type of product for its income • Multinationals—corporations that have manufacturing or service operations in a number of different countries