Total revenue divided by employee headcount. Measures workforce productivity and business scalability. Technology companies with platform models tend to lead. Above $300,000 is generally strong.
Formula
Description
Measures workforce productivity and the scalability of the business model. High revenue per employee indicates the company can grow without proportionally increasing headcount. Technology companies with platform business models tend to lead on this metric.
Interpretation
Above $300K is generally strong. Technology and energy companies often exceed $500K. Labor-intensive businesses like retail or hospitality may fall below $100K. Compare within industry for meaningful benchmarks.
Related Growth Indicators
Overhead costs (selling, general, and administrative expenses) as a percentage of revenue. Below 30% is generally efficient. Buffett notes that companies with consistently low SGA ratios tend to have durable competitive advantages.
Research and development spending as a percentage of revenue. The ideal range depends on industry: tech companies often spend 15-25%. Too little may mean underinvestment in the future; too much may burden profitability.
Total operating expenses divided by revenue. Below 0.8 indicates a healthy 20%+ operating margin. Above 1.0 means the company isn't covering operating costs with revenue. A declining ratio signals improving efficiency.
How quickly a company pays its suppliers. Lower turnover conserves cash. Very low turnover may strain supplier relationships. Compare to receivables turnover for a complete working capital picture.
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