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Business AS > 3. Size of business > Flashcards

3. Size of business Flashcards

1
Q

What are the different methods of measuring the business’ size?

A
  • Number of employees
  • Sales turnover
  • Capital employed
  • Market capitalisation
  • Market share
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2
Q

Define sales turnover

A

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

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3
Q

Define capital employed

A

Total value of all long term finance invested in the business

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4
Q

Define market capitalisation

A

Total value of a company’s issued shares

= current share price x number of shares issued

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5
Q

Define market share

A
  • Sales of the business as a proportion of total market sales
  • (total sales of business/ total sales of industry) x 100
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6
Q

Advantages of using number of employees

A
  • The simplest measure
  • Easy to understand
  • Can make comparisons with other businesses
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7
Q

Disadvantages of using number of employees

A

Automation => not accurate

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8
Q

Advantages of using sales turnover

A
  • Compare firms within the industry

- Easy to understand

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9
Q

Disadvantages of using sales turnover

A
  • Some industries engage in high value production (jewels) and low value production (clothes) => no comparisons
  • Products may not be of high quality
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10
Q

Disadvantages of capital employed

A

Cannot compare between firms of different industries due to different equipment needs

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11
Q

Disadvantages of market capitalisation

A

Share prices tend to fluctuate => this form of measure is not stable/accurate

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12
Q

Advantages of using market share

A
  • Easy to calculate
  • Compare firms within the industry
  • Easy to understand and analyse
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13
Q

Disadvantages of using market share

A
  • Can’t compare firms of different industries

- Market can be a niche market

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14
Q

Advantages of small businesses

A
  • Can be managed or controlled
  • Able to adapt quickly to meet changing customers needs
  • Offer personal services to customers
  • More interactive with employees => motivated workforce
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15
Q

Disadvantages of small businesses

A
  • Limited access to sources of finance
  • Owners have to carry a large burden of responsibility because can’t afford managers
  • Not diversified -> greater risks of negative impact of external change
  • Greater risks of being taken over
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16
Q

Weaknesses of family businesses

A
  • Unqualified family members in jobs
  • Family issues get in the way
  • Family rivalries
  • Keeping control is prioritised over business expansion
  • Lack of management development
17
Q

Strengths of family businesses

A
  • Often play multiple roles => flexible
  • Employees are committed, loyal
  • Shared values and belief => quick decision making
  • Family shared aims => strong sense of vision and ambition
18
Q

Importance of small business and role in the economy

A
  • Job creation: collectively small business sector employs a very significant proportion of the working pop.
  • Sparks innovation: they tend to foster environments that appeal to individuals with the talent to invent new products/improve the way things are done. They are also often run by dynamic entrepreneurs with new ideas for consumer goods and services => adds dynamism to the econ => make nation’s business sector more competitive
19
Q

Role of small businesses as a part of the industry structure

A
  • Small firms create competition for larger firms => larger firms have to improve service and lower price => cannot exploit consumers with high prices => costs of product within the country decrease
  • Smaller firms often supply specialist goods and services to important industries or larger firms
20
Q

What are the 2 types of growth?

A

External and Internal

21
Q

Define internal growth

A

Expansion of business by means of opening branches, shops or factories (reinvesting its profit)

22
Q

Define external growth

A

Business expansion is achieved by means of merging or taking over another business, from either the same or a different industry

23
Q

What are the 5 types of external growth?

A
  • Horizontal integration
  • Vertical integration forward
  • Vertical integration backward
  • Conglomerate integration
  • Takeover
24
Q

Define horizontal integration

A

Integration with firms in the same industry and at the same stage of production

25
Q

Define vertical integration forward

A

Integration with a business in the same industry but a customer of the existing business

26
Q

Define vertical integration backward

A

Integration with a business in the same industry but a supplier of the existing business

27
Q

Define conglomerate integration

A

Integration with a business in a different industry

28
Q

Advantages of internal growth

A
  • Avoid problems of excessively fast growth, which tends to lead to inadequate capital (overtrading), and management problems associated with the different attitudes and cultures when 2 businesses are together
  • Constant, safe growth
29
Q

Disadvantages of internal growth

A
  • Slow growth => not competitive enough => risks of being taken over or wiped out
  • If they have no profits => nothing to reinvest => can’t grow
30
Q

Advantages of horizontal integration

A
  • Eliminates one competitor
  • Possible economies of scale
  • Increased power over suppliers
  • Scope for rationalising
31
Q

Disadvantages of horizontal integration

A

May lead to monopoly if the combined business exceeds certain market share limits

32
Q

Advantages of vertical integration forward

A
  • Business now able to control the promotion and pricing of its own product
  • May now exclude competitor’s product
33
Q

Disadvantages of vertical integration forward

A
  • Lack of competition means the consumers have less choice => prices are higher => may react negatively
  • Lack of experience in this sector of the industry - a successful manufacturer does not necessarily make a good retailer
34
Q

Advantages of vertical integration backward

A
  • Business may now control supplies of materials to competitors
  • Encourages joint research and development into improved quality of supplies of components
35
Q

Disadvantages of vertical integration backward

A
  • Supplying business may become complacent due to having guaranteed customer
  • May lack experience managing a supplying company
36
Q

Advantages of conglomerate integration

A
  • Diversifies the business away from its original industry and markets
  • Spread risk and may take the business into a faster growing market
37
Q

Disadvantages of conglomerate integration

A
  • Lack of management experience in the acquired business sector
  • Could be a lack of focus and direction now that the business is spread across more than one industry
38
Q

Disadvantages of external growth (in general)

A
  • Management issues
  • Conflicts of culture and business ethics
  • Excessive growth => inadequate capital

Business AS (22 decks)

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