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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.

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Presentation on theme: "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."— Presentation transcript:

1 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

2 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 +=

3 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

4 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.

5 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)

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

7 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.

8 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.

9 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.)

10 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

11 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.

12 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)

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

14 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

15 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

16 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

17 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

18 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

19 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

20 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

21 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

22 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

23 Hwk Assessments, Class Work, to Know

24 CH 3 sect 2 Assessments: Checking for Understanding 1 Mergers can diminish costs and increase buying power

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

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

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

28 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

29 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

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

31 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

32 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.

33 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

34 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.

35 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

36 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

37 Brief Response Why do businesses merge? (2)

38 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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