Measuring business size

Question 1

How can business size be measured

Answer 1

Number of employees: larger firms have larger workforce employed

Value of output: larger firms are likely to produce more than smaller ones

Value of capital employed: larger businesses are likely to employ much more capital than smaller ones

Question 2

Limitations of business size measuring methods

Answer 2

However, these methods have their limitations and are not always accurate. Example: When using the ‘number of employees’ method to compare business size is not accurate as a capital intensive firm ( one that employs a large amount of capital equipment) can produce large output by employing very little labour (workers). Similarly, value of capital employed is not a reliable measure when comparing a capital-intensive firm with a labour-intensive firm. Output value is also unreliable because some different types of products are valued differently, and the size of the firm doesn’t depend on this.