Unit 1: Business Activity | Comparing Business Size

Business size can be measured in a number of different methods, the most common are:

Comparing business size by number of employees:

This method is easy to understand, yet some firms use production methods which employ very few people but produce high output levels. This is true in automated factories, which use the latest computer-controlled equipment. These firms are called capital intensive firms - they use very costly equipment to produce their output. In conclusion, a company with high output levels could employ fewer people than a business which produced less output.

Comparing business size by value of output and sales:

A high output of sales does not mean that a business is large when using other methods of measurement. E.g: A firm employing few people might produce and sell several very expensive computers each year. This might give higher sales figures than a firm selling cheaper products but employing more workers.

Comparing business size by capital employed:

This means the total amount of capital invested into the business. A company employing many workers may use labour-intensive methods of production. These give low output levels and use little capital equipment.

Comparing business size by profit:

It is used to measure efficiency when compared with the sales or capital employed at the business. Profit depends on more than just the size of the firm - it depends on the efficiency and the skills of the managers. Some large businesses can make very low profits if they are badly managed.