• It is common knowledge that not all businesses are the same size
  • Some businesses are observably larger than others
  • The Zimbabwean economy for example is dominated by Small to Medium Enterprises (SMEs)
  • So how do we measure the size of a business?
  • There are several ways in which the size of a business can be measured
  • It is important to understand that each method has its advantages and disadvantages
  • At this level you are required to know how each method is used to measure the size of a business and the advantages and disadvantage of each method.
  • Generally, the following methods are used to measure the size of a business
  • Revenue: This refers to the total amount of money a business generates from the sale of its goods or services.
    • This can give an indication of the overall size of the business.
    • As a rule of thumb the bigger a business is the more revenue it generates
    • Conversely, a smaller business generates less revenue
    • Strengths of using revenue as a way to measure the size of a business:
      • It provides an overall picture of the business’s income, which is an important aspect of its financial health.
      • Revenue is a widely used metric in business, making it easy to compare a company’s size with others in its industry.
      • Revenue is straightforward to calculate, requiring only information about sales.
    • Weaknesses of using revenue as a way to measure the size of a business:
      • It doesn’t take into account the cost of goods sold, so it may not accurately reflect the business’s profitability.
      • Revenue can be influenced by factors such as pricing strategies or changes in market conditions, which may not reflect the actual size of the business.
      • In some industries, such as those with high costs and low margins, revenue may not be a good indicator of business size.
      • Revenue is a lagging indicator, meaning it only reflects the results of past performance and may not be a reliable indicator of future growth.
  • Gross Profit: Refers to the difference between revenue and the cost of goods or services sold.
    • This can give an insight into the profitability of the business.
    • This method is related to the revenue above but remember that there are other factors that might affect profit
    • As a general rule, you would expect the bigger of two businesses to have more profit than the smaller business.
    • Strengths of using profit as a way to measure the size of a business:
      • It provides an indication of the business’s ability to generate income after covering its expenses.
      • Profit can give an insight into the overall efficiency and profitability of the business, which is important for its financial health and sustainability.
      • Profit is a widely used metric in business, making it easy to compare a company’s size with others in its industry.
    • Weaknesses of using profit as a way to measure the size of a business:
      • It only considers a specific aspect of the business’s financial performance and doesn’t take into account other factors such as revenue growth or market share.
      • Profit can be influenced by non-recurring events such as one-time gains or losses, which may not reflect the business’s underlying performance.
      • Profit can be affected by accounting decisions, such as the timing of expenses, which may not reflect the true economic performance of the business.
      • Profit may not be a reliable indicator of business size in industries with low margins or high upfront costs.
  • Market Share: Refers to the percentage of the total market that a business holds.
    • This can give an indication of the business’s size in relation to its competitors.
    • Strengths of using market share as a way to measure the size of a business:
      • It provides an indication of the business’s relative size compared to its competitors in the market.
      • Market share can give an insight into the business’s competitiveness and its ability to gain or maintain customers.
      • Market share is easy to calculate and widely used in business, making it easy to compare a company’s size with others in its industry.
    • Weaknesses of using market share as a way to measure the size of a business:
      • It only considers the business’s performance in a specific market and doesn’t take into account other markets or industries.
      • Market share can be influenced by factors such as changes in market conditions or the entry of new competitors, which may not reflect the business’s underlying performance.
      • Market share may not accurately reflect the size of a business in industries where market size is small or declining.
      • Market share may not be a reliable indicator of business size for businesses that operate in multiple markets or have a diverse range of products or services.
  • Number of Employees: The total number of people employed by a business. This can give an indication of the size of the business in terms of its workforce.
    • Strengths of using number of employees as a way to measure the size of a business:
      • It provides an indication of the business’s size in terms of its workforce, which is an important aspect of its operations and competitiveness.
      • The number of employees can give an insight into the business’s ability to attract and retain talent, which is important for its long-term success.
      • The number of employees is easy to calculate and widely used in business, making it easy to compare a company’s size with others in its industry.
    • Weaknesses of using the number of employees as a way to measure the size of a business:
      • It doesn’t take into account other factors such as productivity or efficiency, which may be more important indicators of business size.
      • The number of employees can be influenced by factors such as seasonal hiring or changes in business operations, which may not reflect the underlying size of the business.
      • In industries with a high proportion of part-time or contract workers, the number of employees may not accurately reflect the size of the business.
      • In some cases, businesses may have a high number of employees but still have low revenue or profitability, indicating that the number of employees is not a reliable indicator of business size.
  • Balance Sheet Total: The total value of all the assets and liabilities of a business. This can give an indication of the financial strength of the business.
    • Strengths of using balance sheet total as a way to measure the size of a business:
      • It provides a comprehensive picture of the business’s financial position by considering both its assets and liabilities.
      • The balance sheet total can give an insight into the business’s ability to generate and use resources, which is important for its financial health and sustainability.
      • The balance sheet total is a widely used financial metric, making it easy to compare a company’s size with others in its industry.
    • Weaknesses of using balance sheet total as a way to measure the size of a business:
      • It only considers the business’s financial position at a specific point in time and doesn’t take into account changes in performance over time.
      • The balance sheet total can be influenced by accounting decisions, such as the timing of expenses or the classification of assets, which may not reflect the true economic performance of the business.
      • In some industries, the balance sheet total may not be a reliable indicator of business size if the business has high levels of debt or other liabilities.
      • The balance sheet total may not accurately reflect the size of a business if it operates in multiple markets or has a diverse range of products or services.
  • Stock Market Capitalization: The total value of a company’s outstanding shares of stock. This can give an indication of the overall size of a publicly-traded company.
    • Strengths of using market capitalisation as a way to measure the size of a business:
      • It provides an indication of the business’s size based on its stock market value, which reflects the market’s perception of the company’s future prospects and financial performance.
      • Market capitalisation takes into account factors such as the company’s growth potential and its ability to generate profits, making it a comprehensive measure of business size.
      • Market capitalisation is a widely used financial metric, making it easy to compare a company’s size with others in its industry.
    • Weaknesses of using market capitalisation as a way to measure the size of a business:
      • It only considers the business’s size from the perspective of its shareholders and doesn’t take into account other stakeholders such as employees, suppliers, or customers.
      • Market capitalisation can be influenced by factors such as market sentiment, which may not reflect the true underlying performance of the business.
      • Market capitalisation may not accurately reflect the size of a business if it operates in multiple markets or has a diverse range of products or services.
      • Market capitalisation can be subject to short-term fluctuations, which may not accurately reflect the true size of the business over the long term.
  • Physical Size: The total area of land or floor space occupied by a business. This can give an indication of the size of the business in terms of its physical presence.
    • Strengths of using physical size as a way to measure the size of a business:
      • It provides a tangible and concrete indication of the business’s size in terms of its physical footprint and infrastructure.
      • Physical size can give an insight into the business’s ability to acquire and use resources, such as land, buildings, or equipment, which is important for its operations and competitiveness.
      • Physical size is easy to measure and can be used to compare a company’s size with others in its industry.
    • Weaknesses of using physical size as a way to measure the size of a business:
      • It doesn’t take into account other factors such as revenue, profitability, or market share, which may be more important indicators of business size.
      • Physical size can be influenced by factors such as the type of products or services offered, which may not reflect the underlying size of the business.
      • In some industries, such as technology or software, the physical size of a business may not be an accurate indicator of its size as it may have a high proportion of digital or intangible assets.
      • Physical size may not accurately reflect the size of a business if it operates in multiple markets or has a diverse range of products or services.

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