AS business
Size of the business
3.1 Measurements of business size
Government might wish to give assistance to small firms, so it
will need to identify them. Investors in a business may wish to
compare the size and the rate of growth of the business with
close competitors. Customers may prefer to deal only with large
businesses. Some workers prefer a small business workplace.
There are two problems with measuring business size:
1. May give different comparative results. A business might
appear large by one measure but quite small by another.
2. There is no internationally agreed definition of a small,
medium or large business.
Different measures of business size
Number of employees
§ a business employing many employees is likely to be
large. There are problems some businesses only need to
employ a few people even though they have invested a lot
of capital in the business and achieve high annual sales.
Revenue/ sales turnover
§ often used when comparing businesses in the same
industry. It is less effective when comparing businesses in
different industries because some might be in high-value
production while others might be in low-value production.
Revenue is needed to calculate market share.
, Capital employed
§ Generally, the larger the business the more capital is
needed for long-term investment, or the greater the
amount of capital employed.
Market capitalisation
§ can only be used for businesses that have shares on the
stock exchange (plc). It is calculated by:
§ market capitalisation = current share price × total number
of shares issued
§ As share prices tend to change every day, this form of
comparison is not a very stable one.
Market share
§ is a relative measure. If a firm has a high market share, it
must be among the leaders in the industry and
comparatively large. However, if the size of the total
market is small, a high market share will not indicate a
very large firm.
§ Market share is calculated, for a given time period
§ Market share = total sales of business x 100
§ Total sales of industry
Other measures that can be used
These will depend very much on the industry
3.2 Significance of small businesses
small businesses can play a very significant role within their
own industry, even though the total output they produce might
be relatively small.
What is a small business
§ Small businesses employ few people and will have a
relatively low annual revenue.
Size of the business
3.1 Measurements of business size
Government might wish to give assistance to small firms, so it
will need to identify them. Investors in a business may wish to
compare the size and the rate of growth of the business with
close competitors. Customers may prefer to deal only with large
businesses. Some workers prefer a small business workplace.
There are two problems with measuring business size:
1. May give different comparative results. A business might
appear large by one measure but quite small by another.
2. There is no internationally agreed definition of a small,
medium or large business.
Different measures of business size
Number of employees
§ a business employing many employees is likely to be
large. There are problems some businesses only need to
employ a few people even though they have invested a lot
of capital in the business and achieve high annual sales.
Revenue/ sales turnover
§ often used when comparing businesses in the same
industry. It is less effective when comparing businesses in
different industries because some might be in high-value
production while others might be in low-value production.
Revenue is needed to calculate market share.
, Capital employed
§ Generally, the larger the business the more capital is
needed for long-term investment, or the greater the
amount of capital employed.
Market capitalisation
§ can only be used for businesses that have shares on the
stock exchange (plc). It is calculated by:
§ market capitalisation = current share price × total number
of shares issued
§ As share prices tend to change every day, this form of
comparison is not a very stable one.
Market share
§ is a relative measure. If a firm has a high market share, it
must be among the leaders in the industry and
comparatively large. However, if the size of the total
market is small, a high market share will not indicate a
very large firm.
§ Market share is calculated, for a given time period
§ Market share = total sales of business x 100
§ Total sales of industry
Other measures that can be used
These will depend very much on the industry
3.2 Significance of small businesses
small businesses can play a very significant role within their
own industry, even though the total output they produce might
be relatively small.
What is a small business
§ Small businesses employ few people and will have a
relatively low annual revenue.
