3.1 business growth

Question 1

why might one firm want to stay small

Answer 1

niche market, owner wants to keep control & keep company small

Question 2

describe the principle agent problem

Answer 2

a conflict in priorities between a person or group and the representative authorized to act on their behalf

Question 3

private limited companies

Answer 3

shareholders can only lose the money they invested in the business. take overs cannot happen as share holders will likely only trade with other share holders, likely family members

Question 4

public limited companies

Answer 4

being publicly quotes, shares can be bought by the public as they float on the stock exchange. open to hostile take overs if anyone ownes more than 51% of shares

Question 5

sole trader

Answer 5

wherein an individual runs their own business. any profit of the company is income & thus succesbitle to income tax. unlimited liability

Question 6

partnership

Answer 6

wherein 2 or more people share cost, risks & responsibilities & share profits made by the company

Question 7

for profit

Answer 7

A for-profit can raise money from private investors, for which it must give equity or dividends to shareholders; ultimately, a return on investment is expected.

Question 8

not for profit

Answer 8

A nonprofit, on the other hand, can seek donations from individuals, foundations and corporations.

Question 9

organic growth

Answer 9

internal change, such as opening new branches or producing new products.

+ less risky
+ less loss of control or brand dilution
- time consuming
- limited potential for growth

Question 10

vertical integration

Answer 10

wherein 2 firms at difference stages in the process integrate

forward: ahead of them in the process
backward: behind them in the process eg. raw materials

+ benefit from expertise
+ gain foothold in market
- clash of culture
- less focus

Question 11

organic growth

Answer 11

internal change, such as opening new branches or producing new products.

+ less risky
+ less loss of control or brand dilution
- time consuming
- limited potential for growth

Question 12

vertical integration

Answer 12

wherein 2 firms at difference stages in the process integrate

forward: ahead of them in the process
backward: behind them in the process eg. raw materials

+ benefit from expertise
+ gain foothold in market
- clash of culture
- less focus

Question 13

horizontal integration

Answer 13

wherein 2 firms at the same stage in the process integrate

\+ monopoloy power
\+ remove competition from the market
\+ similar goals & expertise
- finance required
- less tight control

Question 14

conglomerate integration

Answer 14

when two unrelated firms integration eg. car manufacturer with a bookstore

Question 15

integration

Answer 15

bringing together 2 or more firms

Question 16

merger

Answer 16

when 2 or more firms agree to become integrated to form one firm under join ownership. A + B = AB

Question 17

takeover

Answer 17

when one firm gains control over another & becomes the owner. aka owned 51% of shares. A + B = A

Question 18

constraints on the business market that prevent u from being able to soar

Answer 18

Size of the market
Owner objectives
Access to finances
Regulation

Question 19

moral hazard

Answer 19

managers are more involved, owners have limited insight which can lead to a moral hazard

Question 20

demergers

Answer 20

either when theres a merge and then a demerger; or the seperation of a company into two seperate firms

Question 21

reasons for demergers

Answer 21

economics of scale; realise capital from the demerger; specialise in different field; different characteristics might hamper profit maximisation

Question 22

impact of demergers on the business

Answer 22

greater focus on core competancies; diseconomies of scale can be reduced; selling off parts of the business can provide a cheap source of finance aka asset strip
create competition in an industry as one firm becomes two

Question 23

impact of demergers on the business

Answer 23

+ greater focus on core competancies
+ diseconomies of scale can be reduced
+ selling off parts of the business can provide a cheap source of finance aka asset strip
- create competition in an industry as one firm becomes two

Question 24

impact of demergers on the workers

Answer 24

• disposal of unwanted elements could lead to job insecurity