Lecture notes

CIE/ CAIE AS and A level Business notes- Chapter 3: Size of Business

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Module
A Levels

Institution
INTI International College Penang

Book
Cambridge International AS and A Level Business Coursebook with CD-ROM

Hi, this is a detailed note based on this coursebook- A Levels Cambridge International AS and A Level Business Coursebook with CD-ROM, ISBN: 7364. For those who don't want to waste their time flipping through the coursebook, this is perfect for you! It covers all detailed notes and tips from the ...

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Uploaded on August 16, 2021
Number of pages 6
Written in 2021/2022
Type Lecture notes
Professor(s) Ms audrey
Contains All classes

business
a level
as level
cie
caie
chapter 3
year 12
year 13
size of business
detailed
notes

Book Title:Cambridge International AS and A Level Business Coursebook with CD-ROM

Author(s):Peter Stimpson, Alistair Farquharson

Edition:2014-10-16
ISBN:9781107677364
Edition:1

Summary
A2 Section 2: Human Resource Management
Summary
A2 Section 1: Business and Its Environment
Summary
AS Section 5: Finance and Accounting

Institution
INTI International College Penang
Module
A Levels

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Chapter 3: Size of Business
Learning Outcomes
 Identify several the ways of measuring the size of businesses (measurements of business
size)
 Analyse the significance of small businesses/firms on the economy of a country
 Understand the ways how businesses can grow through internal growth

Size of business
 Vary from sole traders  multi-national corporations
 Business size is relevant information to: managers, investors, government
 Small firms offer many benefits for the dynamism of an economy

Measuring business size
 Common to compare businesses by their size
o Government - wish to give assistance to ‘small’ firms, controls over the largest ones
o Investors - wish to compare the size of the business with close competitors – particularly
growth rate
o Customers - may prefer to deal only with large firms (more stable)

2 common problems in measuring business size:
o Several different ways of measuring and comparing business size - often give different
comparative results
o No internationally agreed definition (small, medium / large business)

Different measures of size
1. Number of employees
o Simplest measure
o Problem: businesses employ few people because highly automated (capitalised)
2. Sales turnover (revenue)
o Often used – especially comparing firms in same industry
o Less effective comparing firms in different industries – ‘high-value’ production
(precious jewel) ‘low-value’ production (cleaning services)
3. Capital employed
o Measures – total value of all long-term finance used in the business (a business
borrows for a long term, more than 1 year)

Capital employed = assets - current liabilities (left with non-current liabilities)

o Generally larger business enterprise – greater value of capital
o Comparisons of firms in different industries – misleading picture (i.e. hairdresser,
optician)

, 4. Market capitalisation
o Only for businesses – shares quoted on the Stock Exchange (PLC)
o Problem: share price changes every day (not stable)

Formula:
Market capitalisation=current share price ×total number of shares issued

5. Market share
 Relative measure
 Firm – high market share – among the leaders in the industry & comparatively large
 Problem: Size of total market is small – high market share will not indicate a very large
firm

Formula:
total sales of business
× 100
total sales of industry

6. Other measures
o Depends very much on the industry
o Number of guest beds (hotels)
o Number of shops used (retailers)
o Total floor sales space (retail businesses)

THERE IS NO ‘BEST’ MEAUSRE

Importance of Small & Micro businesses

 Many jobs – created: Many small businesses though may not employ many staff,
collectively they employ a very significant proportion of the workforce in most
countries.
 Dynamic entrepreneurs - new ideas  Helps to create variety in the market and
consumers benefit from greater choice
 Create competition for larger businesses  unexploited consumers
o larger firms will not exploit consumers with high prices & poor services
o i.e. AirAsia budget airline.

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CIE/ CAIE AS and A level Business notes- Chapter 3: Size of Business

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