Methods and limitations of measuring business size.

1. Methods and limitations of measuring the size of a
business

2.  This method is easy to calculate and compare with other
businesses.
 Limitations: Some firms use production methods which employ very
few people but which produce high output levels. This is true for
automated factories which use the latest computer-controlled
equipment. These are called capital intensive firms - they use a
great deal of capital (high cost) equipment to produce their output.
Therefore, a company with high output levels could employ fewer
people than a business which produces lower output.

3.  Calculating the value of output is a common way of comparing
business size in the same industry – especially in manufacturing
industries.
 Limitations: A high level of output does not mean that a business is
large when using other methods of measurement. A firm employing
few people might produce several very expensive computers each
year. This might give higher output figures than a firm selling
cheaper products but employing more workers. The value of output
in any time period might not be the same as the value of sales if
some goods are not sold.

4. This is often used when comparing the size of retailing
businesses – especially retailers selling similar products,
e.g. food.
Limitations: It could be misleading to use this measure
when comparing the size of businesses that sell very
different products, e.g. a market stall selling sweets and a
retailer of luxury handbags or perfumes.

5. This means the total value of capital invested into
the business.
Limitations: This has a similar problem to that of
the ‘number of employees’ measure. A company
employing many workers may use labour-intensive
methods of production. These give low output
levels and use little capital equipment.

6. There is no perfect way of comparing the size of a
business. It is common to use more than one method
and then compare the results.