Sales per Employee Ratio Definition

Forex Glossary

Definition

The earnings per employee ratio can be a asset usage metric which allows analysts to comprehend how effectively a company uses its staff to build earnings. Revenue per worker is a favorite industry step; commonly utilized by the investor-analyst and company direction to benchmark operation.

Calculation

Sales per Employee Ratio = Net Sales / Full Time Equivalents

Where:

  • Net Sales = Gross Sales – Returns
  • Full Time Equivalent: commonly called FTE, the amount of regular equivalents is calculated while the yearly straight time worked by employees separated by 2,080. A part-time employee who works 20 hours each week works 52 x 20, or 1,040 hours each year, while the complete time employee works 52 x40, or even 2,080. Overtime hours are typically not within the calculation of an FTE.

Explanation

Also called earnings each person, the earnings per employee ratio stipulates that the analyst-investor with insights to just how effectively a company uses its employees to create earnings. The metric is popularly employed by company administration, in addition to shareholders, to benchmark a business ‘s performance against industry peers. Higher ratios indicate more revenue generated per employee, that will be desired.

Sales per employee can be considered an extremely strong index of operation when assessing businesses in the services industry of the market such as banking institutions, the banking business, manufacturers of applications, in addition to retailers.

Manufactures can replace labour by automating production with funding equipment, which makes Bench Marking harder. At precisely the exact same manner, businesses which take part in significant outsourcing tasks can have remarkably significant earnings per employee ratios.

Companies in early phases in their development could be less efficient in their surgeries compared to mature businesses. Tracking this metric with period makes it possible for the analyst-investor to comprehend whether the provider is growing better as it develops.

Example

The process improvement team in Company A wanted to comprehend if their tips were leading in a gain in the business ‘s earnings to employee ratio. Company A was increasing earnings throughout the previous four decades, and also the process improvement team has been working hard to ensure employees were working economically.

The table below illustrates the earnings per worker tendency for Company A within the past four decades:

Year Inch Year two Year 3 Year 4
Sales $200,000,000 $220,000,000 $242,000,000 $266,200,000
Full Time Employee Hours 1,123,200 1,179,360 1,238,328 1,300,244
Part-Time Employee Hours 280,800 294,840 309,582 325,061
Total Employee Hours 1,404,000 1,474,200 1,547,910 1,625,306
Total Full Time Equivalents 675 709 744 781
Sales per Employee Ratio $296,296 $310,406 $325,187 $340,672

As the table indicatesthe earnings per employee ratio for Company A is rising as time passes, which contrasts well with the method improvements that they ‘ve instituted.