Growth & Expansion #gainz

Ways to Grow 0 2 Main Strategies 0 Reinvestment 0 Mergers 0 Reinvestment – Generate money by increasing revenue and reducing expenses. Uses the money to expand an existing business. 0 Merger – Combination of 2 or more businesses to work together. Sometimes 1 company buys the other.

Reinvestment 0 Estimating Cash Flow 0 Income Statement shows net income 0 Depreciation – Noncash expense that reduces net income 0 Cash Flow – Net Income + Noncash Expenses; Comprehensive measure of profit 0 Reinvesting Cash Flow 0 Money from positive cash flow can be reinvested 0 Allows business to produce new or additional products 0 Important to investors too; First thing they look at

Mergers 0 Types 0 Horizontal – Firms that produce similar products join together. 0 Vertical – Firms involved in different stages of the process. Trying to protect against loss of suppliers. 0 Reasons 0 Faster Growth 0 Synergy 0 Economies of Scale 0 Diversification 0 Elimination of Rivals 0 Change or Loss of Corporate Identity

Conglomerates 0 Def. – Firm with 4+ businesses, making unrelated goods, non responsible for majority of sales. 0 Diversification is biggest reason for conglomerate mergers 0 Same idea as diversifying investments

Multinationals 0 Def. – Firm w/ operations in different countries. 0 Ability to move resources, goods, services, & capital across national borders 0 Create jobs in an area where they’re needed 0 Produce tax revenue for host nation; Improves economy 0 Abuse of Power: Low wages, export scarce resources, interfere w/ development of local businesses 0 Good Stuff: Lower-cost production & higher quality increases global competition; Raises standard of living for host nation