2. Splash Screen Chapter 3 Business Organizations

3. 2 Section 2-1 Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Study Guide Main Idea Businesses grow through merging with other companies and by investing in the machinery, tools, and equipment used to produce goods and services.  Reading Strategy Graphic Organizer As you read the section, complete a graphic organizer similar to the one on page 68 of your textbook by comparing a vertical merger to a horizontal merger.

4. 3 Section 2-2 Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Key Terms –income statement  –net income  –depreciation  –cash flow  –horizontal merger  –vertical merger  –conglomerate  –multinational –merger  Study Guide (cont.)

5. 4 Section 2-3 Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Objectives After studying this section, you will be able to:  Applying Economic Concepts Business Growth Businesses can grow by reinvesting their profits in themselves, or they can combine with another business. What influences growth? Study Guide (cont.) –Explain how businesses can reinvest their profits to grow and expand.  –Recognize the reasons that cause firms to merge.  –Identify two different types of mergers. 

6. 5 Section 2-4 Click the mouse button or press the Space Bar to display the information. Introduction A business can grow in one of two ways.  First it can grow by reinvesting some of its profits.  A business can also expand by engaging in a merger–a combination of two or more businesses to form a single firm.

7. 6 Section 2-4 Click the mouse button or press the Space Bar to display the information. Did You Know? The federal government’s Bureau of Economic Analysis reported that, in contrast to the American public’s suspicions, U.S.-based multinational companies do not establish most of their manufacturing affiliates in low-wage countries. In 1996, 87 percent of U.S. multinational affiliates’ employment was reported in relatively high-wage countries, primarily in Europe.

8. 7 Section 2-5 Click the mouse button or press the Space Bar to display the information. Growth Through Reinvestment Business revenue can be used to invest in factories, machinery, or new technologies.  Before reinvesting, a business must estimate its cash flow. The business first records its total sales and then subtracts all expenses, taxes, and depreciation. The result is the business’s net income.

9. 8 Section 2-5 Click the mouse button or press the Space Bar to display the information. Growth Through Reinvestment (cont.) Depreciation is added back to net income to get cash flow, or the bottom line—the real measure of business profit.  Business owners then decide whether part of the cash flow should be reinvested in the business to generate additional sales and more profits.

10. 9 Section 2-6 Click the mouse button or press the Space Bar to display the information. Growth Through Reinvestment (cont.)

11. 10 Section 2-Assessment 1 Discussion Question What do you predict may happen when a business has little or no cash flow? Answers will vary. Students should indicate that without additional machinery and newer technologies, the business will eventually lose business to its competitors. Click the mouse button or press the Space Bar to display the answer.

12. 11 Section 2-9 Click the mouse button or press the Space Bar to display the information. Growth Through Mergers When firms merge, one gives up its separate legal identity.  A company may merge with another to grow faster; become more efficient; acquire or deliver a better product; eliminate a rival; or change its image.  A horizontal merger is the joining of firms that make the same product. A vertical merger is the joining of firms involved in different stages of manufacturing or marketing.

13. 12 Section 2-9 Click the mouse button or press the Space Bar to display the information. Growth Through Mergers (cont.) A conglomerate is composed of four or more businesses, each making unrelated products, none of which is responsible for a majority of its sales. Figure 3.6 Conglomerate Structure

14. 13 Section 2-9 Click the mouse button or press the Space Bar to display the information. Growth Through Mergers (cont.) A multinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations. Figure 3.6 Conglomerate Structure

15. 14 Section 2-Assessment 1 Discussion Question Why have some multinational companies been criticized? Answers may include: paying low wages to workers, exporting scarce natural resources, driving out local businesses. Discuss with students that economists believe the advantages of multinationals outweigh the disadvantages. Click the mouse button or press the Space Bar to display the answer.

16. 15 Section 2-Assessment 1 Section Assessment Main Idea Using your notes from the graphic organizer activity on page 68, explain how mergers improve efficiency. Mergers can diminish cost and increase buying power. Click the mouse button or press the Space Bar to display the answer.

17. 16 Section 2-Assessment 2 Section Assessment (cont.) Describe how a firm can generate funds internally to grow and expand. A firm can reinvest revenue from sales into the company in the form of new plants, equipment, and technologies. Click the mouse button or press the Space Bar to display the answer.

18. 17 Section 2-Assessment 3 Section Assessment (cont.) Identify five reasons why firms merge. grow faster, increase efficiency, acquire new product lines, eliminate rivals, or change corporate image Click the mouse button or press the Space Bar to display the answer.

19. 18 Section 2-Assessment 4 Section Assessment (cont.) Describe the different ways a business can merge. horizontal: two or more firms that produce the same product merge; vertical: firms in different steps of manufacturing or marketing merge Click the mouse button or press the Space Bar to display the answer.

20. 19 Section 2-Assessment 6 Section Assessment (cont.) Making Comparisons What are the benefits and drawbacks of multinationals to their host countries? benefits: help spread new technology, generate new jobs, produce tax revenues for host countries; drawbacks: may exploit workers, export scarce natural resources, or adversely interfere with local business Click the mouse button or press the Space Bar to display the answer.

21. 20 Section 2-Assessment 7 Discuss the statement “The world is shrinking,” in relation to the role that multinationals play in the global economy. Section Close

22. End of Section 2 Click the mouse button to return to the Contents slide.