14 Measuring success in business

Question 1

Define capital employed

Answer 1

Amount of money invested in a business

Question 2

Define overtrading

Answer 2

Taking on more work than a business can afford to fund effectively

Question 3

State the different ways of measuring success in business

Answer 3

1. Revenue
2. Market share
3. Customer satisfaction
4. Profit
5. Growth
6. Owner/shareholder satisfaction
7. Employee satisfaction

Question 4

What does revenue highlight?

Answer 4

How much a business is earning over a period of time

Question 5

State the advantage and disadvantage of using revenue to measure success

Answer 5

Advantage: gives good idea of sales
Disadvantage: doesn’t highlight how customers feel about products

Question 6

Explain the impact of a business having a higher market share

Answer 6

Being able to charge more

Because higher market share means a higher profile of business
Leads to consumers recognising business as more superior
Therefore being able to charge a higher price compared to competitors

Question 7

State the advantage and disadvantage of using market share to measure success

Answer 7

Advantage: shows the extent of business winning sales from its rivals
Disadvantage: needs to reflect market context - can be difficult to measure market share as info would be needed about size of market and revenues of main suppliers in market

Question 8

State the advantage and disadvantage of using customer satisfaction to measure success

Answer 8

Advantage: shows the extent of customer’s needs and wants being met
Disadvantage: takes effort for customers to complain and may be harder to gather many opinions

Question 9

State the advantage and disadvantage of using profit to measure success

Answer 9

Advantage: most private sector businesses aim to make profits
Disadvantage: costs should be taken into account, e.g. business might be reinvesting profits to improve

Question 10

State the different ways growth can be measured in a business

Answer 10

1. Turnover or revenue
2. The number of employees
3. Market share
4. Amount of capital employed
5. EU definitions of size

Question 11

What determines shareholder satisfaction in PLCs

Answer 11

Shareholders in PLCs want to make money; they focus on dividend payments, share prices to rise

Question 12

What determines shareholder satisfaction in LTDs

Answer 12

Shareholders in LTDs are likely to be fully involved in running of the business, focus on surviving in the market, rising salaries, business growth

Question 13

What determines employee satisfaction

Answer 13

Want business to be successful to get higher wages, more benefits, and a bonus
Job security
Trained to do job properly
Good working conditions
Oppurtunities for promotion

Question 14

What is the difference between measuring success in large businesses in comparison to small businesses

Answer 14

Large businesses usually measure by profits and growth to meet demands of shareholders
Small businesses may have different objectives such as personal satisfaction