BUSINESS STUDIES (0450) IGCSE CAMBRIDGE

NOTES FOR TOPIC 1.3.2 – THE METHODS AND PROBLEMS OF MEASURING BUSINESS SIZE

Syllabus Snapshot:

Methods and Limitations of measuring business size:

- There are four different methods of measuring business size:

1) Number of people employed: larger firms usually have larger workforce employed;
HOWEVER, this is not the case for some!

Limitations: Some businesses can produce higher output with fewer employees. e.g., some
factories use machines and are capital-intensive rather than labour-intensive. Examples can
be firms producing technological items such as computers.

2) Value of Output: larger firms are likely to produce more than smaller ones; again, this is not
the case for some.

Limitations: Some businesses may be very small but producing very expensive products such
as branded clothing while a very large factory may be producing cheap clothing.
Additionally, if certain goods remain unsold, the value of sales in a given time period may
differ from the overall output value, thus, this method could be inaccurate.

3) Value of Sales: similar to value of output, another easy way to calculate and compare with
other businesses.

Limitations: Value may be different for businesses. For example, a sports car dealer may sell
2 cars a day while a normal car dealer e.g., Toyota may sell 20 cars a day.

4) Capital Employed: this means the total amount of money invested in the business.
Therefore, larger businesses usually employ much more capital than smaller ones.

Limitations: The issue here is similar to the problem faced by the "number of people
employed". A company that hires a large workforce might rely on labour-intensive
production methods, resulting in lower output levels and minimal use of capital equipment.