1.3: Size of Business

Question 1

What are the different measures of size? (5)

Answer 1

1. Number of employees
2. Sales turnover
3. Capital employed
4. Market capitalisation
5. Market share

Question 2

Def. Sales turnover

Answer 2

Total value of sales made by a business in a given time period

Question 3

Def. Capital employed

Answer 3

The total value of all long-term finance invested in the business

Question 4

Def. Market capitalisation

Answer 4

The total value of a company’s issued shares.

Market capitalisation: Current share price x total number of shares issued

Question 5

Def. Market share

Answer 5

Sales of he business as a proportion of total market sales

(Total sales of business/Total sales of industry) x100

Question 6

Which form of measurement is the best?

Answer 6

None of them.

*If an absolute measure of size is required, test a firm on at least two of the above criteria and make comparisons.

Question 7

What is the significance of small and micro businesses? (5)

Answer 7

1. Many jobs are created
2. Adds variety to the market
3. Create more competition
4. Supply specialist goods for larger firms needs eg. wheels
5. They might become large business to benefit the economy

Question 8

How can a government encourage and assist business start ups?
(4)

Answer 8

1. Reduced rate of profit tax
2. Loan guarantee scheme - the gov repays a % of bank loans
3. Information and advice may be provided through agencies
4. May finance some activities

Question 9

Advantages of small business?

Answer 9

1. Often able to adapt quickly to meet changing customer needs
2. Offer personal service to customers
3. Find it easier to know each worker
4. If family owned, the business culture is usually informal, employees would feel motivated and less under pressure

Question 10

Disadvantages of small businesses? (6)

Answer 10

1. Lack of specialist management expertise, the owner has to undertake of management departments
2. No economies of scale
3. Do not have a lot of influence on competition
4. Have access to less sources of finance
5. Cannot spread their risk by diversifying into different markets
6. May not be able to afford market research.

Question 11

Why do business owners and directors seek growth? (5)

Answer 11

1. Increased profits to have higher source of finance.
2. Increasing market share gives higher market profile
3. Increased economies of scale reduce costs
4. Increased power and status of the owners and directors
5. Reduces risk of being a takeover target

Question 12

Def. Internal Growth

Answer 12

Expansion of a business by means of opening new branches, shops or factories ( organic growth).