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Business Expansion

Business Expansion. Unit 5. Aims of this chapter. Identify the reasons for and methods of expansion. Identify the main sources of finance for expansion. Analyse the importance of business expansion in the domestic and foreign markets.

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Business Expansion

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  1. Business Expansion Unit 5

  2. Aims of this chapter • Identify the reasons for and methods of expansion. • Identify the main sources of finance for expansion. • Analyse the importance of business expansion in the domestic and foreign markets. • Compare and contrast equity and loan capital as sources of finance for expansion.

  3. Reasons for expansion 1. Economies of Scale • Large scale production arising from expansion reduces the unit cost of production

  4. Reasons for expansion • Increased financial strength and security • A large business commands influence and power

  5. Reasons for expansion • Eliminate competition • Competition can be eliminated through a merger or takeover of a competitor

  6. Reasons for expansion • Protect sources of raw materials • Consolidation of businesses may emerge due to scarcity of raw materials

  7. Reasons for expansion • Diversification • Growth into different product areas reduces risk

  8. Reason for expansion • Ambition • Many entrepreneurs want to build empires. They want the fame and achievement

  9. Methods of expansion Organic growth. Inorganic growth Internal growth occurs when a business: • Retains profits and reinvests in assets and resources. • Increases sales through marketing and diversification. • Develops new markets through exports. • Franchises External growth is a quick expansion of a business through: • Mergers • Acquisitions • Takeovers • Management buy-outs • Alliances

  10. Examples of external growth • Takeover

  11. Examples of external growth • Alliance

  12. Examples of external growth • Merger

  13. Examples of external growth • Takeover

  14. Examples of external growth • Alliance

  15. Examples of external growth • Acquisition

  16. Finance for expansion • Equity capital • This is when the company raises finance by selling shares. • Shareholders receive dividends and voting rights. • Retained earnings • When the profit is reinvested back into the business rather than distributed as dividends. • Debt capital • This is a long-term loan from a financial institution. • Interest must be paid.

  17. Importance of expansion in Ireland • Employment is created • Increased tax revenues • Better quality goods and services as more money is spend in research by bigger firms • Bigger firms can compete internationally • E.g. Ryanair, Kerry Group, CRH construction

  18. Importance of Irish business expansion in foreign markets • Economies of scale • Increased sales and profits • Less dependence on home market • Exporting improves balance of payments • i.e More money comes into the country

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