econ chapter 8

Terms:

8-1: Business Organization

1. 2. 3. Sole Proprietorship - businesses owned and run by a single individual

General Partnership - all partners responsible for management and financial obligation

Limited Partnership - at least 1 partner is not active in daily operations and has limited

responsible for debts and obligations

4. Corporation - recognized by law as a separate legal entity with rights and responsibilities

of an individual

5. Charter - written government approval to establish a corporation

6. Stock - certificate of ownership

7. Stockholder - own a share or shares

8. Dividend - check paid to stockholders

9. Common Stock - most basic

10. Preferred Stock - no voting privileges but higher claim on corporate income

11. Bond - contract to repay borrowed money and interest on borrowed money

12. Principal - initial amount borrowed

13. Interest - payment made for use of borrowed money

14. Franchise - renting or leasing a successful business model

15. Franchisor - creator and owners of the successful business model

16. Franchisee - person who invests in the successful business model

17. Double Taxation - the imposition of taxes on the same income, assets or financial

transaction at two different points of time.

8-2: Business Growth and Expansion

18. Income Statement - a report showing a business’s sale expenses and profits for a certain

period usually three months or a year

19. Balance Sheet - a financial statements that reports a company’s assets liabilities and

shareholder equity

20. Statement of Cash Flows - a financial report that shows how much cash a company receives

and spends during a specofc perood

21. subtracting all expenses, including taxes, from revenues

22. Cash Flow - total amount of new funds the business generates from operations23. Depreciation - gradual wear on capital goods; noncash charge

24. Noncash Charge - interest may be paid to a bank, wages may be paid to employees or

payment may be made to suppliers to provide some inputs used in productions

25. Reinvesting Cash Flows - If a business has a positive cash flow, the firm can decide how to

allocate it

26. Merger - combination of two or more business enterprises to form a single firm

27. Horizontal Merger - combination of firms producing the same kind of product (same product)

28. Vertical Merger - combination of firms involved in different steps of manufacturing ,

marketing, or sales (protect against potential loss of suppliers)

29. Synergy - when firms combine, they take the best characteristics from both to become a

stronger company

30. Economies of Scale - the larger size usually allows for lower cost of production

31. Diversification - some mergers are driven by the desire to acquire new product lines

32. Conglomerate - Firm with 4 or more businesses making unrelated products, with no single

business responsible for a majority of its sales

33. Multinational Corporation - a corporation that has manufacturing or service operations in a

number of different countries

34. Incubator - places where entrepreneurs can receive the training and other assistance to build a

successful start-up business

35. Venture Capitalist - provider of investment funds to a start-up business in exchange for

partial ownership of the business

36. Angel Investor - Informal and usually affluent investors who provide funds to less-promising

startups

37. Crowdfunding - using social networking to appeal to potential investor