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    6 Replies Latest reply on Aug 11, 2008 7:30 AM by LUCKIEST

    Employee hours VS. Gross Sales?

    Basket_Guy Adventurer
      I am looking into the purchase of an established retail service structured business. Does anyone know if there is an employee hours to sales ration. Meaning total employee hours should equal x.x% of gross sales?
        • Re: Employee hours VS. Gross Sales?
          LUCKIEST Guide
          Employee hours VS. Gross Sales??

          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
          financial health.

          What Is the Sales-per-Employee Ratio?
          The name
          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.


          Interpreting the ratio is fairly straightforward: companies with
          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
          healthy profits

          1 of 1 people found this helpful
          • Re: Employee hours VS. Gross Sales?
            Milleisen Scout
            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).