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Expansion

Key terms of chapter 18

TermDefinition
Economies of Scale this is the idea that the bigger a company gets the lower its unit costs
Diversification in order to defend itself from economic downturn a company may produce new products or take over or merge with a firm in a totally unrelated area.
Asset Stripping when a company is taken over and instead of continuing to run it, the assets are sold off for profit
Organic Growth internally driven growth
Franchise renting of a complete business idea, including name, logo and product to someone else. E.g. McDonalds.
Licensing means allowing other firms to use or sell an invention or design in return for payment of a license fee or royalty.
Joint Venture this occurs when two or more firms agree to cooperate in the establishment of a project or business together. They remain separate companies but share skills and resources to maximise possibility of success
Merger when two companies voluntarily agree to join together permanently into one larger business, for their mutual benefit
Takeover when one company (Holding Company) takes control of another company (Subsidiary Company) by buying more than 50% of its shares.
Grant A source of finance given to a business by the Government or the EU, which does not have to be repaid, providing all the conditions are met.
Equity The entrepreneur raises the money for expansion by selling shares in his company.
Debenture a long term fixed interest loan secured on a valuable asset.
Sale & Leaseback A contract to raise cash by selling a piece of property and simultaneously leasing it back on a long term lease.
Retained Earnings The profits the business has saved up. It can use these profits to pay for expansion.
Created by: jennymarshall
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