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Are Large Firms More Profitable?

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Introduction

Seb Jenner Economics Coursework Are Large Firms More Profitable? The aim of this investigation is to compare company accounts to determine who makes the most profit and who is the most efficient. I will be comparing Safeway's with Tesco's. They are supermarkets who provide both goods and services, for example food, fuel, banking and insurance. I will also be comparing the accounts of British Airways and EasyJet; these two companies are in the air travel business, they only provide a service. I have chosen to compare two sets of company data, because I believe that it will make my experiment more accurate. With each comparison I have chosen one large and one smaller, but still competitive, firm. This is so that I can determine whether large firms are more profitable or not. I predict that the smaller firms will be more efficient, this is because they will need to use their assets more wisely and because a larger firm has money going in to lots of different areas so it is less efficient. ...read more.

Middle

The operating profit is the companies profit before tax and interest. The capital employment is the company's assets excluding the debts and loans. The equation for calculating the Return on Capital Employed is: ROCE = net profit x 100 Capital employed Tesco: 1,166,000,000 x 100 = 23.25 % 5,014,000,000 Safeway: 397,000,000 x 100 = 20.31 % 1,954,600,000 BA: 440,000,000 x 100 = 18.92 % 2,325,000,000 Easyjet: 419,000,000 x 100 = 13.24 % 316,491,000 This shows that the larger companies are, as I predicted, more profitable than the smaller ones. This could be because they have fewer stores/services, for example Tesco have more shops in England than Safeway's do, therefore they are likely to get more customers therefore more sales. Gross Profit Gross profit is the difference between the cost of producing the product and the revenue earned from the sale. This means the total profit made in year as a percentage of sales. The managers of the firms will find the gross profit margin useful to determine how well the company is doing. ...read more.

Conclusion

Conclusion: My investigation has shown that generally the smaller the company the more efficient it is. This is because of diseconomies of scale. It is easier to communicate in a small firm than in a large firm, because you have to send the message through fewer people. Also it is easier to organise a small firm as they need less stock and there are fewer people involved. Also smaller companies have fewer assets, meaning that they need fewer managers. This obviously reduces the wage bill, but also means that there are fewer connections between the workers and the director(s). I also found out that the larger companies are, the more profitable they will be. This is because they have more stores/services, for example BA provide more flights and destinations than Easyjet do, therefore they are likely to get more customers, so more sales. Evaluation: I believe that I could have made this investigation much more accurate by choosing a smaller company than Safeway to compare with Tesco, for example Morrisons. I also could have analysed another year's data so as to make sure that my results were correct. However the investigation did go as I expected, so all in all I am happy. ...read more.

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