1. Operating Performance Ratios: Introduction
  2. Operating Performance Ratios: Fixed-Asset Turnover
  3. Operating Performance Ratios: Sales/Revenue Per Employee
  4. Operating Performance Ratios: Operating Cycle

By Richard Loth (Contact | Biography)

As a gauge of personnel productivity, this indicator simply measures the amount of dollar sales, or revenue, generated per employee. The higher the dollar figure the better. Here again, labor-intensive businesses (ex. mass market retailers) will be less productive in this metric than a high-tech, high product-value manufacturer.

Formula:

Components:

As of December 31, 2005, Zimmer Holdings generated almost $3.3 billion in sales with an average personnel complement for the year of approximately 6,600 employees. The sales, or revenue, figure is the numerator (income statement), and the average number of employees for the year is the denominator (annual report or Form 10-K).



Variations:
An earnings per employee ratio could also be calculated using net income (as opposed to net sales) in the numerator.

Commentary:
Industry and product-line characteristics will influence this indicator of employee productivity. Tracking this dollar figure historically and comparing it to peer-group companies will make this quantitative dollar amount more meaningful in an analytical sense.

For example, Zimmer Holdings' sales per employee figure of $497,878 for its 2005 fiscal year compares very favorably to the figure for two of its direct competitors - Biomet, Inc. (NYSE:BMET) and Stryker Corp. (NYSE:SYK). For their 2005 fiscal years, these companies had sales per employee figures of only $320,215 and $293,883, respectively.

The comparison of Microsoft (Nasdaq:MSFT) and Wal-Mart (WMT), two businesses in very different industries, illustrates how the sales per employee ratio can differ because of this circumstance. Microsoft relies on technology and brain power to drive its revenues, and needs a relatively small personnel complement to accomplish this. On the other hand, a mega-retailer like Wal-Mart is a very labor-intensive operation requiring a large number of employees. These companies' respective sales per employee ratios in 2005 were $670,939 and $172,470, which clearly reflect their industry differences when it comes to personnel requirements.

The sales per employee metric can be a good measure of personnel productivity, with its greatest use being the comparison of industry competitors and the historical performance of the company.

Operating Performance Ratios: Operating Cycle

Related Articles
  1. Investing

    Retail Giant WalMart Engaging with Employees

    Improving employee engagement is paying off.
  2. Managing Wealth

    5 Low-Cost Perks for Small Business Employees

    Money isn’t the only way to motivate employees. Here are some savvy strategies even the smallest business can use.
  3. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  4. Personal Finance

    Top 10 Companies with the Best Parental Leave Benefits (NFLX, ADBE)

    Ikea just announced it will offer its 13,000 salaried and hourly employees in the U.S. up to four months of paid parental leave. Here are the other companies that offer the best benefits around. ...
  5. Financial Advisor

    Why Do Businesses Benefit From Life Insurance on Employees?

    Companies can buy life insurance on their employees and collect the benefit proceeds. Find out why companies want to benefit from the death of their employees.
  6. Managing Wealth

    Three Perks Business Should Give Their Employees

    Firms that treat their employees well have a competitive advantage over their rivals. Here are three important perks to give your employees.
  7. Small Business

    3 Reasons to Develop an Employee Handbook for Your Small Business

    Learn how a small business can benefit from an employee handbook covering labor laws, codes of conduct, leave policies and media relations.
  8. Financial Advisor

    Beware Of Company Stock In Qualified Plans

    While this strategy does have a few advantages, it can also pose some substantial risks to employees.
Frequently Asked Questions
  1. What is the difference between yield and return?

    While both terms are often used to describe the performance of an investment, yield and return are not one and the same ...
  2. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  3. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  4. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
Trading Center