Measurements of business size Flashcards
What are the 5 main measurements of business size?
Number employees, Revenue, Capital employed, Market capitalisation, Market share
Pros and cons of using no of employees
Pro: Accurate measure as bigger businesses can handle the costs of a larger work force
Cons: Large businesses may be highly automated and only need a few skilled workers
Pros and cons of using revenue
Pros: Good at comparing size of firms from the same industry
Cons: Less effective when comparing firms in different industries
Pros and cons of using Market Capitalisation
Pros: Can be used for business that have shares quoted on the stock exchange
Cons: Not stable as the stock market isn’t stable at all
Pros and cons of using market share
Pros: Shows the size of the company compared to its industry
Cons: Industry could be niche so the business could actually very small
Pros and cons of using Capital employed
Pros: Larger business will have a greater amount of capital employed
Cons: Small businesses can have a lot invested initially.
Businesses of the same size can have different capital employed. Opticians need to invest more into capital then hairdressers
Formula for revenue
total value of sales/ a time period
Formula for market capitalisation
Current share price x number of issued shared
Formula for Market share
Total sales/ total sales of industry x 100
What is revenue?
total value of sales made by a business in a
given time period
What is capital employed?
the total value of all long-term finance
invested in the business.
What is market capitalisation?
the total value of a company’s
issued shares
What is market share?
sales of the business as a proportion of
total market sales.
