METHODS AND LIMITATIONS OF MEASURING BUSINESS SIZE

• NUMBER OF EMPLOYEES- 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. Another problem is: should two part time workers who work half of a working week each, be counted as one employee or two?
• VALUE OF OUTPUT- 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 the 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.
• VALUE OF SALES- This is often used when comparing the size of retailing businesses – especially retailers selling similar products (for example, food supermarkets). Limitations: It could be misleading to use this measure when comparing the size of businesses that sell very different products (for example, a market stall selling sweets and a retailer of luxury handbags or perfumes).
• VALUE OF CAPITAL EMPLOYED- This means the total value of capital invested into the business. Limitations: This has a similar problem to that of the ‘number of people employed’ measure. A company employing many workers may use labour-intensive methods of production. These give low output levels and use little capital equipment.