What does this disadvantage of using sales turnover as a measure of business size mean?

"A potential weakness of using sales turnover for comparing sizes of different firms is that some firms may have high turnover, but add relatively little value to the productive process. So results may be misleading."

What does " but add relatively little value to the productive process" mean and how is this going to cause results to be wrong? Please explain. thank you. please be as detailed as possible. i don’t get it at all…

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One Response to “What does this disadvantage of using sales turnover as a measure of business size mean?”

  1. saiyangames says:

    Sales turnover is simply the profit made from sales not taking into account any of the costs that have taken place.

    Some business have a high sales turnover (make a lot of sales) but do not take into account the "productive process" i.e. they don’t count the costs or consider them important.

    Another way that this can be construed is that a factory in someone’s back garden can churn out 10000 rubbish products a day (for example stickers) … so they may be considered a big business based on the sales they make. They can make more sales quicker.

    whereas there might be a massive factory making only one thing a day but employs many more people.

    Therefore the second would be a bigger firm with more employees etc but the first would be classed as bigger based on sales turnover alone.

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