Business Studies – 1.3.2 The methods and problems of measuring business size | e-Consult
1.3.2 The methods and problems of measuring business size (1 questions)
'Capital employed' is a measure of the total investment a business has made in its operations. It represents the funds used to purchase assets like buildings, machinery, and equipment. Comparing capital employed allows for a more comprehensive assessment of business size than just looking at sales or employee numbers. A business with a higher capital employed generally has a larger and more complex operation.
Example Calculation:
| Business A | Business B | |
| Total Assets (£) | £500,000 | £1,000,000 |
| Current Liabilities (£) | £100,000 | £200,000 |
| Capital Employed (£) | £400,000 | £800,000 |
Significance: In this example, Business B has a capital employed of £800,000, compared to Business A's £400,000. This suggests that Business B has made a significantly larger investment in its operations, likely indicating a larger scale of operations, more complex processes, and potentially a greater level of risk. It also implies a greater level of financial commitment and potentially higher potential for growth, although this is not guaranteed.