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Mergers And Acquisitions Essay

2774 words - 12 pages

Introduction:

A Business also called a company or an enterprise is a legal organization which is established to provide goods and services to customers to earn profits which will increase the wealth of the owners and the growth of the business itself.
There are different types of business organizations
1)Unincorporated business:These are the business which include sole traders and partnerships where they have no separate legal identity and the owner is responsible for the working of the business .The owner take sthe full responsibility for the company profits and losses.
2)Incorporated business:These are the business which include private and public limited companies where they have a ...view middle of the document...

The business is under loss before it reaches the breakeven point.
3)Make Profit: Once the breakeven point reached the company tends to make profit .At this point the business must charge more than what is charged to for the product or service to get to the breakeven point for the services it sells.
The business can go beyond the breakeven point by knowing the overhead percentage and calculating it to the bids and sales price the company offers for their products.
Overhead% = Overhead expenses/cost of goods sold.
The overhead is the cost of running a business which includes rent,utilities ,supplies,staff and compensations.The cost of the goods has to be marked depending on the overhead percentage.The business tries to reduce the overhead cost inorder to make profits.
4)Maximisation of profit: The main objective of any formation of a business is to make profit as it ensures the survival of the business in longterm and the profit they make can be used for the future investments.For any business to maximize their profits the owners of the company have to be in control of the day to day management of the business and the desire of the owners should be to make higher profit.The profit can be maximized by maximizing the sales revenue .At this point the business enjoys the economies of scale as it helps the reduction of unit cost of the product due to increased level of production.
There are two main profit maximization methods
1)Marginal cost –Marginal revenue method.
2)Total cost- Total revenue method.

1)Marginal cost-Marginal revenue method:
[pic]
Profit Maximization Method

The profit can be obtained by comparing marginal revenue and marginal cost where marginal cost is the additional cost of producing one more unit of output and marginal revenue is the additional revenue obtained from selling one unit of output..Profit is maximized when marginal revenue and marginal cost are equal.
Marginal Revenue(MR) = Marginal Cost(MC)
Marginal revenue can be obtained by change in total revenue divide by the change in the total output.

Marginal cost(MC) can be obtained by change in the total cost divided by change in the total output.

Total Cost –Total Revenue method:
Total-Revenue Total-Cost Approach (Profit Maximization)
[pic]

In this method of profit maximization the profit is recognized as equal to the total revenue substracted by the total cost.In this figure we can see two break even points where the profit is normal .The profit maximization can be seen where the difference between the total revenue and the total cost is the greatest .

Growth:The firm tries to grow from the profits they make inorder to enjoy a large market share.There are two types of growth.
1)Internal Growth
2)External Growth
1)Internal Growth:The firm uses its own resources to support growth .The company uses its profits to expand the business by inventing new products as to increase its market share by producing products which are more reliable and...

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