CIE/ CAIE AS and A level Business notes- Chapter 3: Size of Business
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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 ...
Summary Cambridge International AS and A Level Business Coursebook with CD-ROM - Business Studies
Summary Cambridge International AS and A Level Business Coursebook with CD-ROM - Business Studies
Summary Cambridge International AS and A Level Business Coursebook with CD-ROM - Business Studies
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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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