Q&A - How can the expansion of a firm be measured?

What do we mean by expansion? In general, expansion is about making the business bigger. But, remember that we can measure the size of a business in different ways. For example:

• Sales revenues
• Profits
• Cash flows
• Capital invested
• Production output
• Number of employees
• Number of outlets or locations
• Value of the business (market capitalisation)
• Market share

In most cases an increase of one of the above measures of business size indicates that the firm is growing successfully - but not necessarily. For example, an increase in sales may lead to higher profits, but not necessarily. It depends on whether those extra sales are profitable (i.e. what additional costs have been incurred to achieve them).

Most business want to expand – to grow sales; to increase profits; to add new locations or extra outlets and to take on more staff. However, expansion is not always easy; nor is it the most appropriate option for some businesses.

A useful way to compare and contrast the options for business expansion is to think in terms of organic (internal) and inorganic (external) growth. The important thing to remember is that both internal and external growth is an option for most firms, and some businesses do both!