Page 34 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 1 Understanding business activity

Measuring business size

There are several ways of measuring and comparing the size of businesses. Th e
most common methods are shown in Figure 3.2.

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Figure 3.2 Measuring business size

Capital employed

This is the value of all long-term finance invested in a business. It is used to buy
the things that a business needs before it can produce goods and services, for

example factory/office buildings, machinery and inventory – these are known
as assets.
A small business will invest less capital than a large business in the same
industry. For example, a small baker will only need one shop, one food mixer,
one oven and a small inventory of raw materials. A large bread manufacturer will
need production lines, industrial mixers, large ovens and a large inventory of
raw materials.
Using capital employed to compare the size of businesses in diff erent industries
is a problem because some industries, such as car manufacturing, need a very large
capital investment in factories and machinery. Others, such as computer soft ware
design, do not.