What are the Advantages of Amalgamation? Post: Gaurav Akrani. Date: 8/12/2012. No Comments. Label: Finance I What are the Advantages of Amalgamation? The ten principal advantages of amalgamation are depicted below. Advantages of Amalgamation The main benefits or advantages of amalgamation are as follows: 1. Operating economics 2. Diversification. 3. Financial economics. 4, Growth, 5, Managerial effectiveness.Now let's discuss each advantage of amalgamation one by one. 1. Operating economics Operating economics means expenses associated with business and its allied activities. These expenses are rec to-day activities of the business. These generally include fixed cost and variable cost. When companies amalgamate, their business operation expands. Such expansion helps them to use and man large-scale production and distribution Under operating economies: 1. Amalgamated companies optimally utilize their production and distribution capacity. 2. They also manage to reduce operating cost, management cost, personnel cost, ete. Hence, based on above discussion, we can say that, amalgamation results in operating economics. 2. Diversification Diversification means to have presence (establishment) in different business ventures, which are not related to ea1 An amalgamated company diversifies into new business ventures because of following main reasons’ 1. Ithas enough strength to handle the risks of diversification. 2, Italso has ample financial resources at its stake to diversity. 3. Financial economics Financial economies means expenses associated with the acquisition of funds required to run the business. This short-term monetary obligations. Under financial economies: 1. An amalgamated company can get tax benefits, especially, when a loss-making company amalgamates with company, 2. Itean borrow more funds from the market at lower rate of interest. Thus, in short, amalgamation helps in achieving financial economics. 4, Growth5. Managerial effectiveness Managerial effectiveness is a manager's skill to attain the desired outcome in the business operations. An amalgamated company improves its managerial effectiveness by: 1. Replacing ineffective management team with an effective and efficient management team. 2, Mandating managers to share their past work-experiences in the best interest of the company as and when r 6. Helps to face competition Amalgamation inculcates business strategies that help to face market competition with ease and confidence. Due to economies of large-scale production and distribution, the amalgamated companies are able to: 1, Produce better and affordable quality goods and services. 2. Sell such goods and services at competitive prices to sustain in the market 7. Revival of sick units Amalgamation contributes in curing sick industrial units. This can be achieved by: 1, Amalgamating loss-bearing companies with the profit-making companies. 2. Restarting the earlier shutdown companies. Thus, amalgamation helps to alleviate the problem of industrial sickness. 8. Tax advantages Amalgamation is used for effective tax planning, It is used: 1. When one of the amalgamated companies has accumulated business losses. 2. When one of the amalgamated companies enjoys a subsidized rate of taxation, In such a case, it will result in large tax savings for the amalgamated company. 9. Increase in market share Amalgamation helps to increase the market share of the amalgamated-company. This can be achieved by:11. Miscellaneous advantages Miscellaneous advantages of amalgamation are listed as follows: 1. Amalgamation helps to reduce competition among the companies operating in the same industry. 2. Ithelps to increase the market price of the shares of the amalgamated company. 3, It promotes the brand value of the amalgamated company. 4, Itresults in yielding synergy (joint co-operation) gains (additional profit) to the amalgamated company.