1.3
Chapter 3
Size of Business
3.1 Measurements of Business Size
There is no single "correct" way to measure a business; different measures can
give very different results. A business might look huge by one measure but quite
small by another.
Why measure business size?
• Governments: To identify which small firms need financial assistance or tax breaks.
• Investors: To compare the growth rates of businesses against their competitors.
• Customers: Some prefer dealing with large, secure companies, while others prefer
the personal touch of a small workplace.
Common Measures of Size
Number of Employees
This is the simplest and easiest measure to understand.
• The Logic: Generally, a business with more employees is considered larger.
• The Problem: It can be misleading due to automation. A highly automated
factory might produce millions of items with only 10 workers, while a manual
factory might need 100 workers to produce the same amount.
Revenue (or sales turnover)
Limitations: It is less effective
when comparing businesses
Formula Key Term
in different industries. For
The total value
example, high-value retailers revenue : The total
of sales made
(like jewelers) may have high value of sales made
during a specific
revenue but low-value service during a specific
trading period =
providers (like cleaning trading period.
selling price x
services) might not, even if
quantity sold
they are large in other ways.
, Capital Employed
Generally, the larger the business, the Key Term
greater the amount of capital needed for
long-term investment.
Capital employed : The
Limitations: This can give a misleading
total value of all long-
picture when comparing firms in different
term finance invested in
industries. A small firm like an optician
the business.
needs very expensive diagnostic
equipment, while a larger firm in a different
sector might need less.
Market Capitalisation
Constraint: This measure can Formula
only be used for businesses Key Term
quoted on the stock market capitalization market capitalization:
exchange (Public Limited = share price x total Sales of the business
Companies). number of shares as a proportion of total
Limitations: It is unstable issued market sales.
because share prices change
every day. A temporary drop
in share price can make a
business look smaller than it
actually is.
Market Share
If a firm has a high market
Formula Key Term
share, it is a leader in its
market share = Market share: Sales
industry.
total sales of of the business as a
business/total proportion of total
sales of industry x market sales.
100
Chapter 3
Size of Business
3.1 Measurements of Business Size
There is no single "correct" way to measure a business; different measures can
give very different results. A business might look huge by one measure but quite
small by another.
Why measure business size?
• Governments: To identify which small firms need financial assistance or tax breaks.
• Investors: To compare the growth rates of businesses against their competitors.
• Customers: Some prefer dealing with large, secure companies, while others prefer
the personal touch of a small workplace.
Common Measures of Size
Number of Employees
This is the simplest and easiest measure to understand.
• The Logic: Generally, a business with more employees is considered larger.
• The Problem: It can be misleading due to automation. A highly automated
factory might produce millions of items with only 10 workers, while a manual
factory might need 100 workers to produce the same amount.
Revenue (or sales turnover)
Limitations: It is less effective
when comparing businesses
Formula Key Term
in different industries. For
The total value
example, high-value retailers revenue : The total
of sales made
(like jewelers) may have high value of sales made
during a specific
revenue but low-value service during a specific
trading period =
providers (like cleaning trading period.
selling price x
services) might not, even if
quantity sold
they are large in other ways.
, Capital Employed
Generally, the larger the business, the Key Term
greater the amount of capital needed for
long-term investment.
Capital employed : The
Limitations: This can give a misleading
total value of all long-
picture when comparing firms in different
term finance invested in
industries. A small firm like an optician
the business.
needs very expensive diagnostic
equipment, while a larger firm in a different
sector might need less.
Market Capitalisation
Constraint: This measure can Formula
only be used for businesses Key Term
quoted on the stock market capitalization market capitalization:
exchange (Public Limited = share price x total Sales of the business
Companies). number of shares as a proportion of total
Limitations: It is unstable issued market sales.
because share prices change
every day. A temporary drop
in share price can make a
business look smaller than it
actually is.
Market Share
If a firm has a high market
Formula Key Term
share, it is a leader in its
market share = Market share: Sales
industry.
total sales of of the business as a
business/total proportion of total
sales of industry x market sales.
100
