9609 · 1.3.1
Measurements of business size flashcards
Revision flashcards for Cambridge 9609 Measurements of business size (syllabus 1.3.1). Flip, recall, then mark a real past-paper question.
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Revenue as size measure?
Total sales value — easy data but high-revenue low-margin firms may be weak.
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Employees measure?
Headcount — suits services; misleading for automated factories.
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Capital employed?
Total assets minus current liabilities — capital-intensive sectors.
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Market share?
Firm sales ÷ total market sales × 100%.
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Why measure size?
Compare competitors, government aid thresholds, merger analysis.
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SME definition?
Varies by country — often by employees or turnover (1.3.2).
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Limitation of one measure?
Use multiple measures — Amazon high revenue, also huge employment and capital.
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Link to 9.1.2?
Economies of scale relate to absolute size.
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What is 'Capital Employed'?
The total value of all long-term finance invested in the business. It is calculated as (Total Assets - Current Liabilities) or (Shareholders' Equity + Non-Current Liabilities).
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Define 'Market Share' and provide the formula.
The percentage of a market's total sales that is earned by a particular company. Formula: (Company's Sales / Total Market Sales) × 100.
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Why is revenue a potentially misleading measure of business size?
It measures sales income, not profitability. A business can have high revenue but be making a loss. It also doesn't account for the value of assets or the number of employees required to generate that revenue.
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In which type of industry is 'number of employees' a particularly useful measure of size?
Labour-intensive industries, such as services like cleaning, catering, or consultancy, where the number of staff directly relates to the scale of operations.
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Why is it important for stakeholders to measure business size?
To allow for comparison with competitors (benchmarking), to attract investors who may seek market leaders, to help governments assess market concentration, and for internal analysis of growth over time.