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

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business growth and expansion

Business Growth and Expansion

Unit Five, Lesson Three

Cook Economics

growth through reinvestment
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
growth through reinvestment1
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
growth through mergers
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
types of mergers
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
growth through mergers1
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
growth through mergers2
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
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