05 Explain limitation of using capital employed to compare business size.

[MuhammadAli91191]

[KN] Measuring business size through capital employed is not always reliable as the amount invested in assets doesn’t always reflect the true scale of operations.
[APP] For instance, a small luxury hotel may purchase premium furniture and technology giving it a high capital value compared to a much larger budget hotel.
[AN] This can create a distorted view of business size as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with lowcost firms become unfair which leads to investors misjudging the firms efficiency hence lead to poor financial decisions.

[Wahaj Ashraf]

[KN]Capital employed measures the total value of assets used in a business, but it may not always be a reliable way to compare the size of different businesses.
[APP] a car manufacturing company like Toyota will have high capital employed due to expensive machinery and factories they have while a legal consultancy firm may use fewer assets but earn high profits.
[AN] This can create a false view of the businesses as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with low cost firms become unfair which leading to poor financial decisions being made.

[Wahaj Ashraf]

[KN]Capital employed measures the total value of assets used in a business, but it may not always be a reliable way to compare the size of different businesses.
[APP] a car manufacturing company like Toyota will have high capital employed due to expensive machinery and factories they have while a legal consultancy firm may use fewer assets but earn high profits.
[AN] This can create a false view of the businesses as high spending doesn’t always mean higher production capacity hence smaller firms may appear larger on paper comparisons with low cost firms become unfair which leading to poor financial decisions being made.

[Hajra]

K: Using capital employed to compare business size can be limited because different businesses need different amounts of capital to operate.
App: For example, a software company may use little capital but earn more than a factory that has expensive machines.
An: This makes comparisons misleading, doesn’t show profit or efficiency levels, and ignores how well the capital is being used in each business.

[Mustafa Khan]

kn]capital employed business cant be compared with a labor intensive business.
app]for example, toyota have more capital invested in their business as compared to a construction compony.
an]hence thede 2 companies cant be compared as it can give inaccurate results which can mislead the investors, because of which they might experience financial loss and will eventually increase market volatility.

[abdurrehman waseem]

KN: Some firms operate efficiently with fewer assets due to outsourcing or leasing.
App: For example, Uber has relatively low capital employed as it doesn’t own cars.
An: Therefore, using capital employed can underestimate the size of such firms, as it doesn’t fully capture their market influence or revenue scale.

[Aayan Zaidi]

KN: Capital employed shows how much money a business uses, but it doesn't always show how big and successful it really is.
APP: E.g 2 airlines might invest the same amount, but one could earn much more profit.
AN: So, it can be misleading because high capital doesn't always mean a bigger and better business.