IGCSE, A Level Business Student Forum

Q11 Analyse the reasons, why value of sales (revenue) can’t be a good approach to measure business size. [6]

Sample Answer:
[KN] It depends on the nature of job, premium v/s conventional services like business in Cambridge stream against the conventional stream.
[AN] This will lead to misinformed decisions of the investors
[AN+] There might be higher risks in businesses having higher earnings due to increased levels of competitions.

[KN] It depends on the life of business, a business in operations for 10+ years against the other business just initiated its operations can't be compared.
[AN] Higher revenues would be collected by a mature business against the start-ups, therefore making decision only on one factor won't be an accurate step.
[AN+] It is advised to measure the size using multiple methods to make less riskier decisions.

[KN] Differences in Profit Margins.
[AN] Two businesses with the same revenue figures may have different profit margins. One may have high-profit margins, while the other may have low profit margins.
[AN+] This difference can significantly affect the financial health and sustainability of the businesses and their ability to expand or invest in growth.

[KN] Economies of Scale.
[AN] Larger businesses often benefit from economies of scale, meaning they can produce goods or services more efficiently and cost-effectively. This can lead to lower prices and higher sales volumes.
[AN+] Hence, a smaller business with higher revenue may not necessarily be larger in terms of operational scale.

[KN] Profitability differences
[AN] Two companies with the same revenue can have vastly different profitability levels. One may operate at a higher profit margin, while the other may have significant costs that eat into its revenue.
[AN+] thus Focusing solely on revenue doesn't account for this crucial aspect of business performance.

[KN] Innovation
[AN] High-tech companies often place a significant emphasis on research and development. While these activities may not immediately contribute to revenue, they are crucial for long-term growth and competitiveness.
[AN+] Focusing solely on revenue can undervalue the importance of these investments.

KN: Profit Margins
AN: Businesses can have different profit margins, meaning that a high-revenue business may not be more profitable
AN+: A business with lower revenue but higher margins might be more financially sound.
KN: Customer Base
AN: The number of customers or clients a business serves is a crucial indicator of its size, yet it's not reflected in revenue
AN+: A business with a smaller customer base but high transaction value may have substantial revenue, but a limited reach

[KN] profit margin
[AN] the value of sales can't specify the amount of profit earned by the business as the business could also be running on breakeven
[AN+] this means value of sales is not the correct method of measuring the business size

[KN] customer base
[AN] some of the businesses are operating in niche market and they are not make huge amount of sales
[AN+] they might be making high amount of profit on even low amount of sales

[KN]Profit Margins and Cost Efficiency
[AN]A business may have high revenue but low profit margins due to high operating costs.
[AN+]Some businesses, especially those in retail or hospitality, may experience significant seasonal variations in revenue.

[KN]Different Business Models
[AN]Understanding that industries and business models have varying revenue structures.
[AN+] This is because of different market landscapes and competitive levels

[KN] Industry Differences
[AN] Sales figures can vary significantly between industries due to different pricing structures and customer bases.
[AN+] Comparing sales across industries can be misleading in assessing the true size and significance of a business.

[KN] Sustainability
[AN] High sales might not necessarily reflect a sustainable or enduring business.
[AN+] Businesses can achieve high sales briefly without long-term viability.

(kn) difference in costs(an) some firms may have more costs than others and need a higher amount of sales than others(an+) the firm may have low sales and low costs and may have more profits than that which has high sales but high costs
(kn) volume of sales (an) some businesses need less sales and get more money than a business that works for days(an+)such can be seen with a heart surgeon with just one surgery he can get more sales than people in areas like selling plants who need to sell many

(kn) prices
(an) the products sold can be at different prices
(an+) some firms many also have higher or lower prices then our business
(kn) different market
(an) mass market might have more customers and more sales
(an+) comparing this business revenue to niche market sales will be unfair

[KN] It depends on the nature of job, premium v/s conventional services like business in Cambridge stream against the conventional stream.
[AN] This will lead to misinformed decisions of the investors
[AN+] There might be higher risks in businesses having higher earnings due to increased levels of competitions.


[KN] It depends on the life of business, a business in operations for 10+ years against the other business just initiated its operations can't be compared.
[AN] Higher revenues would be collected by a mature business against the start-ups, therefore making decision only on one factor won't be an accurate step.
[AN+] It is advised to measure the size using multiple methods to make less riskier decisions.

[KN] It ignores the volume of sales
[AN] this method says that the business with high added value is bigger as compared to less added value for eg diamond jewellry vs artificial jewellery
[AN] hence customer base of a business may be high but its revenue may be low

[KN]Low profitability
[AN] Cost of production of a business may be much higher than its revenue therefore revenue may not provide true picture of how worthy a business is
[AN] thus it can be misleading

[kn] misleading when measuring business sizes of different products
[an] as some businesses are more high value added while others are less value added
[an+] thus although consumer base may be high its revenue would be low
[kn]depends on life of a business
[an] one business might have been in the industry for 7+ years while one might've just registered therefore making decisions on one factor is inaccurate.
[an+] therefore using multiple methods is more likely to be accurate

(KN) Profitability differences
(AN) Two companies with the same revenue can have vastly different profitability levels. One may operate at a higher profit margin, while the other may have significant costs that eat into its revenue.
(AN+) thus Focusing solely on revenue doesn't account for this crucial aspect of business performance.

(KN) Innovation
(AN) High-tech companies often place a significant emphasis on research and development. While these activities may not immediately contribute to revenue, they are crucial for long-term growth and competitiveness.
(AN+) Focusing solely on revenue can undervalue the importance of these investments.

Abbas17 wrote: ↑Tue Nov 07, 2023 10:05 pm (KN) Profitability differences
(AN) Two companies with the same revenue can have vastly different profitability levels. One may operate at a higher profit margin, while the other may have significant costs that eat into its revenue.
(AN+) thus Focusing solely on revenue doesn't account for this crucial aspect of business performance.

(KN) Innovation
(AN) High-tech companies often place a significant emphasis on research and development. While these activities may not immediately contribute to revenue, they are crucial for long-term growth and competitiveness.
(AN+) Focusing solely on revenue can undervalue the importance of these investments.

complete and utterly plagiarized from another person

[KN] When evaluating business size and performance, it's essential to consider various factors, such as the nature of the job and the life stage of the business.
[AN] Relying solely on a single factor, like premium vs. conventional services or the age of the business, can lead to misinformed decisions.
[AN+] Businesses with higher earnings may face increased competition and risks

[KN] The comparison of businesses relies on their operational duration, making it inappropriate to equate a long-established business of over a decade with a newly launched one.
[AN] Mature businesses tend to generate higher revenues compared to startups, highlighting the inaccuracy of basing decisions solely on one factor.
[AN+] To minimize risks,employ multiple measurement methods to gauge business size and make more informed decision