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Employee hours VS. Gross Sales??1 of 1 people found this helpful
Investment analysts use a variety of key ratios, such as return on equity , return on assets , and price-earnings ratio (, to gauge a company's
well being. One number that doesn't get a lot of attention is the
sales-per-employee ratio. While it does have its limitations, this
ratio does give investors some sense of a company's productivity and
What Is the Sales-per-Employee Ratio?
indicates how the sales/employee ratio is calculated: a company's
annual sales divided by its total employees. Annual sales and employee
numbers are easily located in published statements and annual reports.
The sales-per-employee ratio provides a broad indication of how
expensive a company is to run. It can be especially insightful when
measuring the efficiency of businesses such as banks, retailers,
consultants, software companies and media groups. "People businesses" lend themselves to the sales per employee ratio.
higher sales-per-employee figures are generally considered more
efficient than those with lower figures. A higher sales-per-employee
ratio indicates that the company can operate on low overhead costs, and
therefore do more with less employees, which often translates into
Luckiest, do you happen to know what a good ratio would be?
Sorry for two posting
I wouldn't worry too much about such a ratio. If you are trying to figure out if the business is going to be a worthwhile investment, the best measure is cash flow. In order to figure out if the price being asked is reasonable, you can find sales of comparable businesses and the "cash flow multiples" that have been paid. For example, if a business has $10,000 in cash flow, and it sells for $20,000, then the cash flow multiple is 2.0 times. If the business you are looking at is asking for a higher multiple than normal, they are asking too much. If you the multiple is lower, then its underpriced (look hard at tricky things like whether the officer takes a salary).
Milleisen thank you for your response, and if I understand you correctly what you are saying is that a good asking price for a business is double its gross annual sales?
Employee hours VS. Gross Sales??
I do not think that you are understanding Milleisen correctly.
He is using those numbers as an example. Every business and every industry is different.
Asking price can be based Sales, Profits, Location, and lets not forget Goodwill.
Lets see what Milleisen has to answer, LUCKIEST