At one point we may want to determine the size of the company. This helps to know if it is growing or not. You also determine the size of your business to plan for its various aspects and requirements such as manpower, raw materials, machinery, etc. Once you know the size of your company, you will be able to determine if it is efficiency or not. A company can be small, medium or large.

All companies strive to achieve the optimal size. What is the optimal size of a company? The optimal size is when the company has reached its maximum efficiency. At this stage, the firm’s average cost per unit is lowest. It is at this point that the size of the company should not be changed, that is, increased or reduced. Typically, any business starts out as a small entity and then, during its operational period, expands to the optimal size.

There are two main things that will make the company reach the optimal size or not. The two things are:

1.) The type of decision management makes.

2.) Competition.

Eight factors that determine the size of the company

There are a number of factors you can consider when measuring the size of a business. The following are some of the factors:

1.) Total assets

The total assets of any business determine its size. The value of all assets (current and fixed) is used to measure the size of a company. When comparing the total asset value between two companies that are in the same industry, the size is not always revealed.

2.) Energy used

The amount of energy used can be used to determine the size of the business. Please do not rely on this factor as it is inaccurate because the amount of energy used by any company can be more or less due to many factors, such as the installation of energy reduction equipment.

3.) Capital investment factor

The amount of capital invested by shareholders in the form of share capital, reserves, and surplus (equity) determines the size of the company. You can use the amount of equity invested to compare two or more businesses that produce similar or different products.

4.) Output volume

This factor is applied to those companies that are producing homogeneous goods. It should not be used in case companies produce a variety of products.

5.) Output value

This is another factor that determines the size of a company; however, this method is only effective when firms produce a variety of products and price levels remain constant.

6.) Plant Capacity

It is used by companies that produce similar products.

7.) Number of employees

The number of employees employed by any company can be used to determine its size. This is done by comparing the wages paid to employees with other businesses. This factor is used when companies produce similar goods. If you use it to compare companies that are producing differentiated products, you’ll end up with results that aren’t accurate.

8.) Raw materials used

The annual consumption of raw materials of any company determines its size. Raw materials are used to determine the size of the business where companies produce similar products.

Of all these factors, production volume and production value are the most effective and reliable factors for measuring the size of any business unit.