Measuring Business Size (Cambridge International IGCSE Business)
Exam board Cambridge International · IGCSEUpdated 2025-08-27
Methods of measuring business size
Spec point — "number of people employed, value of output/sales, volume of output/sales, capital employed (profit is not a method of measuring business size)"
Methods of measuring business size
- A simple way to classify businesses is to consider their size
Business size can be measured in several ways, including the size of the workforce, the value of capital employed and the value of sales or output
Size of the workforce
- A measure of how many workers are in the business
- Small and medium-sized businesses (SMEs) employ less than 250 employees
- Large businesses have 250 or more employees
Value of capital employed by the business
- Capital employed is a measure of all the capital (money, equipment, buildings) that is currently invested in a business
Value of business sales
- The total sales revenue achieved during a trading period
- It is calculated using the formula:
- The volume of sales can also be used to measure business size
Value of business output
- The financial worth of goods produced, even though they may not all be sold
- It is calculated using the formula:
- The volume of output can also be used to measure business size
Case Study
Comparing business size
Company Size of the workforce Capital employed Value of output Futuristic Microchips - 4 Designers
- 5 Maintenance staff
- 9 Total employees- High tech production line - $100,000 - 5,000 Microchips at $100 = $500,000 Tasty Satsumas - 400 Farm workers
- 18 Managers
- 418 Total employees- Basic fruit-picking tools
- $20,000- 500, 000 oranges at $1= $500,000
- Futuristic Microchips is the largest organisation using the measures of number of employees and capital employed
- Tasty Satsumas is the same size as Futuristic Microchips in terms of the value of output
Problems when measuring business size
- Each method of measuring business size has significant limitations
Limitations of measures of business size
| Method | Limitations |
|---|---|
| Size of the workforce | - The method of production can influence this metric significantly - Capital-intensive businesses produce high levels of output with few employees - Labour-intensive businesses have many employees that may generate a small volume of output - The nature of workers' contracts can make this measure unreliable - Some businesses hire part-time workers, while others prefer full-time workers - Short-term, zero hours or agency worker contracts may not be included in workforce measurement |
| Value of capital employed | - Not accurate when comparing labour-intensive and capital-intensive production methods - European manufacturing businesses tend to have high levels of capital, such as robots or advanced machinery, compared to those located in countries such as Vietnam and Indonesia - Property values differ significantly across the world, and even between regions - For example, the value of property in Singapore is significantly greater than property in mainland China |
| Value of sales | - Businesses sell very different products - Comparing a market stall selling sweets with a retailer of luxury handbags would be unrealistic, as their prices and volumes sold are very different - Selling prices vary between markets - Businesses may sell products to customers in low-income markets at a lower price than in a higher-income market |
| Value of output | - High-value output can be produced by businesses with very few employees or with limited capital employed - For example, a bespoke jewellery maker may produce only a few expensive items each year - The value of output does not measure how successful a business has been at selling goods produced. If they are left unsold, they are a poor measure of business size |
Exam Hint Remember, profit is not a method of measuring business size. Stick to recognised measures such as number of employees, value of output/sales, or capital employed
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