How to Measure the Size of a Business Concern?
“Actually, no one has tried seriously to develop those touchstones or standards that may easily be applied to determine the size category of a business unit. All standards are only rough estimates. ”
Business units on an average have great variation in their size. The size of a unit depends upon the nature of product and methods and equipments used for production. If, for example, we take the shipping industry, it got to have a large size because of the very nature of its operations.
In the same way public utility services like electricity, railways etc. have large units because of their nature. On the other hand, an enterprise dealing in artistic goods tends to have small units.
Actually, no one has tried seriously to develop those touchstones or standards that may easily be applied to determine the size category of a business unit. All standards are only rough estimates.
One standard is to calculate the amount of capital investment involved in a business. The larger the investment, the larger will be the size of the unit. If investment is less, the size of the unit will be small.
The amount of capital can also be used to compare the size of two or more units. But, to calculate the amount of spent capital is again a very tricky task. A concern may have less capital on the surface but in fact the investment may be more.
The number of goods produced by a unit may also be used as a measure for the determination of size. Here again, the issue of the homogeneity of the products springs up. Business units involved in the production of totally dissimilar products can’t be compared in this way.
In an enterprise where quantity of output is not comparable because of variety of goods, we can also resort to the net worth of products and then can calculate our figures for the comparison of totally dissimilar firms. This method for measuring the size is reliable as compared of many other methods. But, as says commonsense, prices are seldom stable and so pose a grave threat to this calculation method.
So, in a nutshell, we can say that, at present a lot of research is needed as far as the measuring and comparison of various business units is concerned.
Author - DeeKay
Tags - Finance, Economy
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