UNIT 1. Chapter 3: Size of business

Question 1

What are the different measures of size? (5)

Answer 1

1. Number of employees
2. Sales turnover
3. Capital employed
4. Market capitalisation
5. Market share

Question 2

Def. Sales turnover

Answer 2

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

Question 3

Def. Capital employed

Answer 3

The total value of all long-term finance invested in the business

Question 4

Def. Market capitalisation

Answer 4

The total value of a company’s issued shares.

Market capitalisation: Current share price x total number of shares issued

Question 5

Def. Market share

Answer 5

Sales of he business as a proportion of total market sales

(Total sales of business/Total sales of industry) x100

Question 5

Which form of measurement is the best?

Answer 5

None of them.

•If an absolute measure of size is required, test a firm on at least two of the above criteria and make comparisons.

Question 6

What is the significance of small and micro businesses? (5)

Answer 6

• Many jobs are created
• Adds variety to the market
• Create more competition
• Supply specialist goods for larger firms needs eg. wheels
• They might become large business to benefit the economy

Question 7

How can a government encourage and assist business start ups?
(4)

Answer 7

• Reduced rate of profit tax
• Loan guarantee scheme - the gov repays a % of bank loans
• Information and advice may be provided through agencies
• May finance some acitivites

Question 9

Advantages of small business?

Answer 9

• Often able to adapt quickly to meet changing customer needs
• Offer personal service to customers
• Find it easier to know each worker
• If family owned, the business culture is usually informal, employees would feel motivated and less under pressure

Question 10

Disadvantages of small businesses? (6)

Answer 10

• Lack of specialist management expertise, the owner has to undertake of management departments
• No economies of scale
• Do not have a lot of influence on competition
• Have access to less sources of finance
• Cannot spread their risk by diversifying into different markets
• May not be able to afford market research.

Question 11

Why do business owners and directors seek growth?

Answer 11

• Increased profits to have higher source of finance.
• Increasing market share gives higher market profile
• Increased economies of scale reduce costs
• Increased power and status of the owners and directors
• Reduces risk of being a takeover target

Question 12

Def. Internal Growth

Answer 12

Expansion of a business by means of opening new branches, shops or factories ( organic growth).