Ch 3 Size of a business Flashcards
What are the different methods of measuring the business’ size?
- Number of employees
- Sales turnover
- Capital employed
- Market capitalisation
- Market share
Define sales turnover
Total value of sales made by a business in a given time period
Define capital employed
Total value of all long term finance invested in the business
Define market capitalisation
Total value of a company’s issued shares
= current share price x number of shares issued
Define market share
- Sales of the business as a proportion of total market sales
- (total sales of business/ total sales of industry) x 100
Advantages of using number of employees
- The simplest measure
- Easy to understand
- Can make comparisons with other businesses
Disadvantages of using number of employees
Automation => not accurate
Advantages of using sales turnover
- Compare firms within the industry
- Easy to understand
Disadvantages of capital employed
Cannot compare between firms of different industries due to different equipment needs
Disadvantages of market capitalisation
Share prices tend to fluctuate => this form of measure is not stable/accurate
Advantages of using market share
- Easy to calculate
- Compare firms within the industry
- Easy to understand and analyse
Disadvantages of using market share
- Can’t compare firms of different industries
- Market can be a niche market
Advantages of small businesses
- 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
Disadvantages of small businesses
- 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
Weaknesses of family businesses
- Unqualified family members in jobs
- Family issues get in the way
- Family rivalries
- Keeping control is prioritised over business expansion
- Lack of management development
Strengths of family businesses
- 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
Importance of small business and role in the economy
- 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
What are the 2 types of growth?
External and Internal
Define internal growth
Expansion of business by means of opening branches, shops or factories (reinvesting its profit)
Define external growth
Business expansion is achieved by means of merging or taking over another business, from either the same or a different industry
What are the 5 types of external growth?
- Horizontal integration
- Vertical integration forward
- Vertical integration backward
- Conglomerate integration
- Takeover
Define horizontal integration
Integration with firms in the same industry and at the same stage of production
Define vertical integration forward
Integration with a business in the same industry but a customer of the existing business
Define vertical integration backward
Integration with a business in the same industry but a supplier of the existing business
