Business Criteria: Classification and Key Formulas

Key Business Formulas

• Total Cost (TC): TC = FC + VC
• Average Total Cost (ATC): ATC = TC / Q
• Average Variable Cost (AVC): AVC = VC / Q
• Revenue: Price per Unit x Units Sold (P * Q)
• Profit: Revenue - Total Cost

Business Criteria Classification

1. According to the Nature of Economic Activity

• Primary-sector firms: Obtain useful resources from nature. Includes agriculture, mining, fisheries, livestock, etc.
• Companies in manufacturing or processing: Develop productive activity to physically transform some goods into others more useful for use. This area includes industrial and construction companies.
• Companies in the tertiary or services sector:
  • Commercial: Drive an increase in offering goods to consumers where and when they need them.
  • Service: Meet needs of very diverse nature: transport, catering, tourism, financial, healthcare, education, communications, counseling, support, and more.

2. According to Size

Although there is no single criterion for measuring a company's size, key indicators used are: volume, number of employees, profits, etc. A widely used criterion for its simplicity is usually the number of workers. According to this criterion, companies are called:

• Micro: Fewer than 10 workers
• Small: Fewer than 50 workers
• Medium: Between 50 and 250 workers
• Large: More than 250 employees

3. According to Scope of Operation

Depending on the geographical area in which the enterprise carries on business, companies can be distinguished as local, regional, national, and multinational companies.

4. According to Capital Ownership

• Private companies: Ownership and control are in private hands.
• Public companies: Capital and control are in the hands of the State.
• Mixed companies: Ownership is shared.

5. According to Legal Form

• Individual Companies: When a business is developed by one physical person (self-employed), who, as owner, is liable with all their assets for the debts of the company. It is the easiest way to establish a business and generally tends to be small.
• Business or Corporate Societies: Formed by a number of people who, by contract, undertake to put in money, goods, or work. The contract gives rise to a new legal entity, distinct from the individuals who form it.