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Chapter 3-2 Growth & Expansion. Objectives. You will be able to explain how businesses can reinvest their profits to grow and expand You will be able recognize the reasons that cause firms to merge You will be able to identify two different types of mergers. Growth Through Reinvestment.
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Chapter 3-2 Growth & Expansion
Objectives • You will be able to explain how businesses can reinvest their profits to grow and expand • You will be able recognize the reasons that cause firms to merge • You will be able to identify two different types of mergers
Growth Through Reinvestment • depreciation = non cash charge for the general wear and tear on capital goods • Cash flow = the bottom line, the real measure of profits • Can be allocated to investors (as dividend) or reinvested in the business
Growth Through Mergers • Reasons for merging: • grow faster — desire to be a bigger • business quickly • efficiency—only need one CEO, CFO • etc. • need for new product lines • ex: phone companies bought cable tv • companies to offer internet & phone • as one package
Catch up w/ or eliminate rivals • ex: --Royal Caribbean and Celebrity Cruise • merged to double in size to catch up • to Carnival • --Staples tried to buy Office Depot but • the gov’t said NO—it would reduce • competition too much
Types of Mergers • Horizontal --2 or more firms that produce the same kind of product --ex. Exxon and Mobile Ford and Volvo Disney and Miramax Bell Atlantic & GTE = Verizon
Vertical --firms involved in different steps of manufacturing join together --Ex: oil company owns oil field refineries gas station
Conglomerate • A firm that has @ least 4 businesses EX: Pfizer —makes prescription meds (Lipitor and Viagra), chewing gum (Trident, Dentyne), razors (Schick), cough drops (Halls), breath mints (Clorets and Certs) and antacids (Rolaids)
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Multinationals • Corporation that has manufacturing or service operations in a # of different countries Ex: GM, Ford, Nabisco, Mitsubishi, and Sony
= In India