Definition
The financial ratio income per employee is a measure of management efficiency. Income per employee takes the company's operating income from the income statement and divides it by the number of employees needed to produce that revenue.
Calculation
Income per Employee = Operating Income / Number of Employees
Explanation
Income per employee measures management's ability to use their employee resources effectively to create profits for the company. Alternate measures include revenues per employee and net income per employee. However, operating income is considered a superior measure since it looks at labor costs and it's not affected by non-operating or one-time adjustments to net income.
When making a comparison between two companies, the business with the higher value for income per employee is the more efficient organization. When drawing conclusions about the relative performance of a company, benchmark comparisons should be made with competitors in the same industry.
Example
Company A's income statement indicates operating income of $6,178,000. The company's profile indicates a total of 84 employees. The income per employee ratio would be:
= $6,178,000 / 84, or $73,547 per employee
Related Terms
- The term return on investment, or ROI, is used to describe a number of financial metrics that are used to measure the profitability of a company. All of the return on investment metrics use variables found on both the income statement and balance sheet.
Moneyzine EditorSeptember 21st, 2023 - The financial ratio known as the operating expense ratio, or OER, is considered a measurement of management efficiency. Using information found on the income statement, this metric looks at the ratio of operating expenses to net sales.Moneyzine EditorSeptember 20th, 2023
- The financial metric revenue per employee is an efficiency ratio that analyzes management's ability to use its employees to generate revenue. Only two variables are required to determine this value: total revenues, which can be found on the income statement and the number of employees, which can often be found in the company's annual report.Moneyzine EditorSeptember 21st, 2023
