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.
Income per Employee = Operating Income / Number of Employees
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.
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