Section 2: Business Section 2: Business Growth and Expansion Growth and Expansion In 1998, Kroger Co. purchased Fred Meyer Co. for In 1998, Kroger Co. purchased Fred Meyer Co. for $12.8 billion, operating 2,200 stores in 31 states, $12.8 billion, operating 2,200 stores in 31 states, boasting $41 billion in annual sales. boasting $41 billion in annual sales. What’s become of Kroger…? What’s become of Kroger…? KR - The Kroger Co. - Google Finance KR - The Kroger Co. - Google Finance Section 2 Learning Objective: Analyze the impact of mergers on the economy
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Section 2: Business Section 2: Business Growth and ExpansionGrowth and Expansion
In 1998, Kroger Co. purchased Fred Meyer Co. In 1998, Kroger Co. purchased Fred Meyer Co. for $12.8 billion, operating 2,200 stores in 31 for $12.8 billion, operating 2,200 stores in 31
states, boasting $41 billion in annual sales.states, boasting $41 billion in annual sales.What’s become of Kroger…?What’s become of Kroger…?
KR - The Kroger Co. - Google FinanceKR - The Kroger Co. - Google Finance
Section 2 Learning Objective:Analyze the impact of mergers on
How does a business grow?How does a business grow?
Reinvesting Reinvesting it’s it’s profitsprofits
MergerMerger--combining two or combining two or more business more business ventures into one ventures into one single firm single firm (conglomerate)(conglomerate)
Growth Through Growth Through ReinvestmentReinvestment
Businesses may use Businesses may use portion of revenue portion of revenue to invest in:to invest in: FactoriesFactories MachineryMachinery New technologyNew technology
Income StatementIncome Statement
Report showing business’ sales, expenses, Report showing business’ sales, expenses, and profits for a specific amount of timeand profits for a specific amount of time
Estimating Cash FlowsEstimating Cash Flows First: First: Record total salesRecord total sales Second: Second: Find Find net incomenet income by by
subtracting all expenses, subtracting all expenses, including including taxes,taxes, from revenue from revenue
Expenses: Expenses: inventory, inventory, wages/salaries, interest payments, wages/salaries, interest payments, and and depreciation depreciation (any non-cash (any non-cash charge the firm takes for general charge the firm takes for general wear & tear on capital goods)wear & tear on capital goods) Why is depreciation considered a non-Why is depreciation considered a non-
cash charge?cash charge?
Cash FlowCash Flow
The sum of net income and non-cash The sum of net income and non-cash charges, is the charges, is the bottom linebottom line, or real , or real measure of profits for the business.measure of profits for the business.
Reinvesting Cash FlowReinvesting Cash Flow
The owners decide how the cash flow The owners decide how the cash flow will be allocated:will be allocated:
Paid back to owners for taking the Paid back to owners for taking the riskrisk
Paid towards new capital equipmentPaid towards new capital equipment Paid to employees (profit sharing)Paid to employees (profit sharing) Can be used to produce additional Can be used to produce additional
goodsgoods
Growth Through MergersGrowth Through Mergers
One company gives up its separate One company gives up its separate legal identitylegal identity
For public recognition purposes, the For public recognition purposes, the name of the new company may name of the new company may reflect the identities of the merged reflect the identities of the merged companycompany
Ex?Ex?
Reasons for MergingReasons for Merging
A company wants to grow fasterA company wants to grow faster Efficiency: No need for two Efficiency: No need for two
presidents, two treasurers AND presidents, two treasurers AND the new company can have more the new company can have more retail outlets without increasing retail outlets without increasing management costsmanagement costs
Need to acquire a new product Need to acquire a new product lineline
Such as Pepsico…Such as Pepsico…
Reasons for MergingReasons for Merging
Remember the AOL/Time-Warner Remember the AOL/Time-Warner merger?merger?
Horizontal MergerHorizontal Merger: 2 or more firms : 2 or more firms that produce the same kind of that produce the same kind of product join forcesproduct join forces
+ =
Types of MergersTypes of Mergers
Vertical MergerVertical Merger: Firms that are : Firms that are involved in different steps of involved in different steps of manufacturing or marketing. manufacturing or marketing.
Take place when companies believe Take place when companies believe that it is important to protect that it is important to protect themselves against the loss of themselves against the loss of supplierssuppliers
ConglomeratesConglomerates
A firm with at least A firm with at least 44 businesses, businesses, each making unrelated products, each making unrelated products, none of which is responsible for a none of which is responsible for a majority of its salesmajority of its sales..
A corporation that has manufacturing or A corporation that has manufacturing or service operations in a number of service operations in a number of different countriesdifferent countries
Subject to the laws and must pay taxes Subject to the laws and must pay taxes in each country where it is locatedin each country where it is located
MultinationalsMultinationals
They have the ability to move They have the ability to move resources, goods, services, and resources, goods, services, and financial capital across national bordersfinancial capital across national borders
UsuallyUsually welcome because they transfer welcome because they transfer new technology and generate new jobs new technology and generate new jobs into the area where jobs are needed.into the area where jobs are needed.
Help the nation’s economy…?Help the nation’s economy…?
MultinationalsMultinationals
Known to abuse power by:Known to abuse power by: Paying low wages to Paying low wages to
workersworkers Exporting scarce resourcesExporting scarce resources Adversely interfering with Adversely interfering with
development of local development of local businessesbusinesses
