Key Notes on Business Sizes

Company size refers to the size of the company’s operations. We measure it using various metrics, including assets, revenue, production, market capitalisation, number of employees, and invested capital. Size is one of the most relevant aspects in which companies differ. Knowing the different company sizes and categories of organisations can be a professional advantage no matter what your job is. Knowing the most common company sizes and their main characteristics is essential information.

The size of the company matters as it affects the company’s competitiveness. For example, large companies have substantial resources to support competitiveness. In addition, they benefit from more significant economies of scale that do not exist in small businesses. Therefore, they have the advantage of reducing costs while increasing yields.

How Do You Determine Company Size?

Several metrics that determine company size include:

The number of employees – how many people the company employs. Large companies use more workers than small companies because of the size of their operations.

Revenue – Revenue is income earned from the sale of goods or services. Another way is to use a sales volume measure.

Production –  Production is the yield produced by the company. This metric is irrelevant for service companies, as we cannot quantify their production in the same way as manufacturing companies.

Amount of capital invested – how much money the company holds. It generally correlates positively with available resources. For example, capital can refer to the sum of equity and debt. Alternatively, we can refer to physical assets such as property, plants and equipment.

Market Capitalization – What is the total value of the shares issued by the company. It only applies to public companies whose publicly traded shares and listed on the stock exchange.

• Market capitalisation = company share price x number of outstanding shares.

What Are The Classifications of Company Size?

The size of a company is a relative term that largely depends on the industry in which it operates. However, there are three main company sizes, and regardless of their field, they all share some characteristics. The three main types of company size classification are:

Small Business Definition: Any service sector unit with an investment of up to Rs 2 crore in equipment is classified as a small enterprise in the MSME department. In manufacturing, any unit with an investment of less than Rs 5 crore in factories and machinery is classified as a small business.

Medium-sized Business Definition: In India, a medium-sized business refers to an enterprise with an investment of no more than Rs 50 crore in plant and machinery or equipment and a turnover of no more than Rs 250 crore.

Large-sized Business Definition: In India, Large-sized businesses are those with fixed assets exceeding 10 crore or Rs. 100 million.

Some of the Business Factors That Determine Company Size Include

(i) Sales estimates: The size of the company depends on the size of the market, as evidenced by reliable sales estimates; this way the company can avoid investing in facilities that are too large and too costly to be profitable. The size of the company is limited by the size of the market (i.e. the size of the demand).

(ii) Expansion Prospects: The size of the company also depends on the prospect of near-term demand growth. An enterprise can operate on a large scale and can meet the needs of future business expansion.

(iii) Technical factors: Some of the technical factors that evaluate the company size include:

1. The nature of the production machine: When the production machine is very large, the size of the company will be large, eg. In the case of the steel industry or shipbuilding or aviation. Likewise, companies are usually smaller when the production machines are small and simple, such as when making cutlery, baking bread, making ballpoint pens, etc.
2. Diversification of production: more standardized products; perhaps larger business scale. Companies that produce standardized and fashionable products tend to be smaller.
3. Availability of inputs: The size of a company depends on the availability of inputs required for production, such as inputs required for raw materials, labour, energy, etc. are not readily available; the size of the company cannot be very large. The size of a company depends on the availability of necessary inputs.
4. Applicability of the Income Approach: According to The Economist, the size of a company also depends on the applicability of the Income Approach. Whether the relevant industry obeys the law of increasing or decreasing returns affects the size of the company.
5. Transportation costs: When the finished product transportation costs are high; the business can be operated on a small scale to meet the needs of local consumers.

Business Size by Employees

• An employee has a contractual obligation to work in a company and get paid. 
• People on sick leave, paid leave or furloughs are included, while owner-operators, active business partners, unpaid domestic workers and domestic workers are excluded. 
• Permanent employees are those who have and have entered into an express or implied contract of employment with the same employer or have continued such employment contracts for a period exceeding the prescribed national minimums (as determined by the circumstances of the country). 
• A permanent employee is an employee with a permanent contract. 
• The company is responsible for paying taxes and social security contributions, and national labour laws govern the contractual relationship. 
• Companies can be small or medium (fewer than 250 employees) or large (250 or more employees). This indicator denotes the number of people employed in the manufacturing industry.

Conclusion

This short course talks about different companies, depending on their size, industry and ownership structure. In doing so, you begin to develop specific study skills, such as carefully reading text and case study information and applying certain concepts (in this case, different business categories) to this case study information.