Chapter 3 Business Organizations Section 1 p. 57, terms

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Brief Response

• •

Why does a corporation sell bonds?

A corporation sells bonds to raise money.

– It is a way of borrowing money from people (investors) to develop and operate the company.

1

CH 3, Section 2 p. 68 Terms: listed in front of section

• • Merger 68 a combination of two or more businesses to form one firm + =

merger

• • • • United Continental.

This merger was to save both airlines from total bankruptcy and shutting down after the terrorist attacks of 2001.

To suit both sides in the merger a “new” livery was created.

Every plane in both fleets had to be repainted. Not a cheap thing to do .

merger

• • United Continental Airlines.

EC: On your CN, list two reasons for the big expense in changing over the livery: – When a plane is not flying, it is not making money.

– Paint crews and materials cost a lot of money.

Income statement

• 68 a report showing a business’s – Sales – Expenses – Earnings and profits – Over a period of time • Quarterly (3 months) • Annually (12 months)

Net income

• 68 gross income (revenue) minus: – Expenses • Taxes • Cost of goods (inventory) • Wages and salaries • Interest payments

Depreciation

• 69 a non-cash charge the firm takes for the general wear and tear on its capital goods.

– May be deducted from taxes if used as part of one’s business.

Cash flow

• • 69 the sum of net income and non-cash charges (depreciation).

The true amount of profit (cash) made by the company’s operations.

Horizontal merger

• • 71 two more firms that produce the same good or service join forces.

Chase National Bank and the Bank of Manhattan => – Chase Manhattan Bank – – EC: Why is the man crying?

When the companies merge rates for their services will likely go up (less competition.)

Vertical merger

• • • 71 firms involved in different steps of manufacturing or marketing join forces Main motivation is to – Cut costs – Avoid problems if a supplier • Goes out of business • • Raise prices Goes in with a competitor Andrew Carnegie started US Steel, but – Merged with an iron ore company to gain a cheaper price on iron.

– Merged with a rail company to get cheaper prices on transportation

Thinking Back

• • • Which type of merger was that of Continental Airlines and United Airlines? Why? Horizontal Because both companies do the same type of business.

Conglomerate

• • 71 a firm having at least four businesses making unrelated goods and services Diversification: – Ex.: RJ Reynolds (tobacco/cigarettes) • Sea-Land (containerized shipping) • KFC (fast food) • Del Monte (fruit and vegetable processing) • Heublein (wine and distilled spirits)

Other Conglomerates (samples)

• • Korea • Samsung Group • – – GS Group Hyundai Heavy Industries Lotte Group Japan – Lotte Group – Panasonic – Mitsubishi – – Itochu Corporation Sony – Sega Sammy Holdings • • EU – – – – – ThyssenKrupp Siemens AG Bayer Airbus Contrive Group US – – – – – – Fortune Brands The Walt Disney Company Koch Industries General Electric Berkshire Hathaway 4Kids Entertainment

Multinational

• • 72 aka ‘Multinational Corporation’, MNC’, ‘Transnational’ A business that has manufacturing or service operations in a number of different countries.

– Microsoft, US – – Ford, US Coca Cola, US – Gap, US – – Toyota, Japan Mitsubishi – Sony – – Nabisco, UK British Petroleum (BP), UK – Royal Dutch Shell, The Netherlands

CH 3, Section 3 p. 75 Terms: listed in front of section

• • • • Non-profit organization 75 Operates like a business Promotes a collective interest of its membership Does not seek financial gain for its owners from its operations.

– Schools – Churches – Hospitals – Welfare groups – Adoption agencies

Cooperative

• • • 76 aka Co-op A voluntary association of people formed to carry on some kind of economic activity that will benefit its members…..

– Cut costs by group purchases – Special deals for members • Goods and services Types include – Consumer co-op – Service co-op – Producer co-op

Credit union

• • • 76 A service co-op Members usually employees in – A similar job field – A government agency – A large corporation deposit money in it like a bank – Get easier/faster loan terms and interest

Labor union

• • • 76 an organization of workers formed to represent workers.

– Hears and presents members’ interests in various employment matters.

Collective bargaining Union negotiates with company over member’s issues, including…..

– Pay – Work hours – Health care coverage – – Life insurance Vacations – Job related matters

Professional association

• • 77 a group of people in a specialized occupation that works to improve the – Working conditions – Skill levels – Public perception of the profession Samples include: – American Medical Association – American Bar Association – American Federation of Teachers

Chamber of commerce

• • • 78 promotes the welfare of its members (business) and of the community national, state, and local Activities include: – Promotion of business • Opportunities • Generation – Education – – Neighborhood charity/assistance Lobbying government for favorable business legislation

Better Business Bureau

• • • • 78 a non-profit organization sponsored by local businesses Provides general information on companies Maintains records on – Consumer questions – Consumer complaints Sometimes offers consumer education programs

Public utility

• • • 79 Any company that offers vital products or services to the public – Privately owned – Municipal-owned Include: – Water, – Natural gas – Electricity – Public transportation – telephone Are regulated by the government to assure: – Smooth, efficent operation – Availability to all members of the public – Reasonable rates • Lower costs to low-income members

Hwk Assessments , Class Work, to Know

CH 3 sect 2 Assessments: Checking for Understanding

• • 1 Mergers can diminish costs and increase buying power

Assessments

• • 3 A firm can reinvest revenue from sales into the company: – New plants – Equipment – technologies

Assessments

• • • • • • 4 Grow faster Increase efficiency Acquire new product lines Eliminate rivals Change corporate image

Assessments

• • • 5 Horizontal: – Two or more firms that produce same product or service merge Vertical: – Firms in different steps of manufacturing or marketing merge

CH 3 sect 3 Assessments: Checking for Understanding

• • • • 1 Consumer: – Buy goods/services in bulk – Offer members reduced prices Service: – Provide only services instead of goods Producer – Help member promote/sell products

Assessments

• • • • • 3 Community/civic organizations: – Provide goods/services, – Promote the common good Cooperatives: – Carry on activities that benefit members Labor, Professional, and Business organizations: – Promote interests of members Government: – Regulate the economy

Assessments

• • • 4 Direct: – Police and fire protection – Schools – Court systems Indirect: – Regulation of public utilities – Regulation of quasi-monopolies – Subsidies

Images, p. 69

• • • • question: The cash flow + what does it make possible for the company?

– Investment in • new plant • Equipment • technologies + what does that help generate for the company?

– Sales and services – earnings

Images, p. 72

• • • • • Question + Can a multinational BE a conglomerate (and vice versa)? Explain.

Conglomerate: – has at least four business Multinational – Has manufacturing or service organizations in a number of different countries.

Yes – If the conglomerate makes goods and services in other nations – If the multinational makes diversified goods and services.

Concepts

• Define a vertical merger and a horizontal merger.

A horizontal merger

– is when two or more firms that produce the same kind of product join forces. –

A vertical merger

– takes place when firms involved in different steps of manufacturing or marketing come together

Which term best suits Berkshire Hathaway? Explain (use your sheet if you have room) • • • Horizontal merger Vertical merger Conglomerate • • Answer: Conglomerate, as it owns many unrelated businesses with vastly disparate products and services.

Image, p. 76

• • • • Question Consumer cooperative – Buys bulk goods on behalf of members Service cooperative – Offers members various services at lower costs Producer cooperative – Helps members promote or sell their products and services

Image, p. 77

• • • • • question Because a co-op buys goods in bulk, it can offer its members reduced prices.

+ Name a well-known consumer co-op in your city…..(remember, members pay a membership fee) Costco Sam’s Club

Brief Response

Why do businesses merge? (2)

EC Project: due in two weeks

• You and up to one partner create a company around a real type of business. (26 EC possible) – Company name – ID product – Incorporate the graphic organizer on p. 64 with your own information.

• write how each department would be involved in the product. – Make up circumstances, but be accurate and appropriate. •

Ex.:

• • •

Peach Corporation (2) Laptops (2)

In one box (there are 11 (x2 pts) : Payroll -- cuts pay and bonus checks to various employees –

This example, so far, just earned 6 EC points for the individual/pair of students

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