1.3.2 Measuring Business Size
Instruction :
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Go through all instructions and course details thoroughly before starting each lesson or activity.
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Watch the attached video lessons attentively and take clear, organized notes in your notebook.
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Write all answers for the attached worksheets in your notebook. Make sure your work is neat and properly labeled.
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Revise your notes and completed worksheets after each lesson to reinforce understanding.
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If you face any difficulty or have questions, note them down and contact your instructor or course coordinator for guidance.
Click to download the Video Lecture Handout.
Good morning everyone! Today we are going to talk about how we measure the size of a business and why it even matters. You’ll see that a business’s “size” isn’t just about how big its building is or how much profit it makes. There are several ways to measure size, and each one tells us something slightly different.
Let’s start with why we measure business size.
Understanding size helps us compare different businesses, both within an industry and across industries. For example, the government might offer financial support or tax relief to small businesses, while investors might prefer to invest in larger, more stable companies. Also, big businesses often enjoy what we call economies of scale, which means they can reduce costs by producing more goods.
Now, how do we measure the size of a business? There isn’t just one single way. Businesses can be measured by number of employees, value of output, or capital employed. Let’s look at each one.
The first method is by number of employees. This one’s pretty straightforward. We simply count how many people work for the business.
For example, a small bakery with five workers is much smaller than a bread factory employing two hundred workers.
This method is simple and easy to use, especially when comparing businesses in the same industry.
However, it can be misleading. In some industries, like oil or car manufacturing, machines do most of the work, so even a huge company might only employ a few hundred people.
The second method is by value of output. This means measuring how much money a business earns from selling its goods or services in a year.
For example, a small car workshop might make cars worth fifty thousand dollars, while a large car company like Toyota might make cars worth five million dollars. Clearly, Toyota’s output is much higher.
This measure works well for manufacturing firms, but it’s not perfect either. If a business sells very expensive or specialized products, it might seem “large” by output value, even if it’s small in other ways.
The third method is by capital employed, which means the total value of everything the business has invested in—money, buildings, machinery, and equipment.
For instance, a mining company might have ten million dollars’ worth of equipment, making it larger in scale than a local landscaping business with only fifty thousand dollars’ worth of tools.
However, not all businesses need a lot of capital to operate. Think about software companies—they can earn millions with just a few computers and employees.
Now here’s something important: profit is not a good measure of business size. Just because a company earns high profits doesn’t mean it’s big. A small jewelry shop could make more profit than a large supermarket, depending on its products and pricing. So, we never use profit to measure size.
Of course, each method has limitations. Some industries are more capital-intensive, while others are labour-intensive. That means using only one measure can give us an incomplete picture.
Also, there’s no international standard. What counts as a large business in one country might be considered medium-sized in another. And business size can change quickly over time due to growth, investment, or mergers.
So, the best approach is to use a combination of measures. For example, imagine a pharmaceutical company that employs 500 people, has 50 million dollars in capital, and produces 300 million dollars’ worth of medicine each year. Looking at all three figures together gives us a much better idea of its actual size than relying on just one measure.
To wrap up, understanding how to measure business size helps us compare companies, understand their market position, and analyse their operations. But remember, there is no perfect way to measure size. Each method—employees, output, and capital—has strengths and weaknesses. The smartest way is to use them together.
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