What Makes a Productive Company - the Criteria

Currently I am reading book named "Less is More", and following is something I really liked about the productive comapnies, I will put more from this book

  • Revenue Per Employee - This measueres - arrived at by divifing total sales by the number of employees- speaks volumes about a company's ability to efficiently market and sell its goods.
    Some companies use ploy to inflate their sales per employee numbers. They fire employees and rehire them or others as a contracted workforce. It looks good on paper but it didn't get past us. We conunted the workforce numbers of all the companies we eventually profiled to make certain they were accurate and we tallied part-time employees and proportionately conunted them as full-time equivalents.
  • Return on Equity and Return on Assets - The percentage return on a company's net worth for a given period tells shareholders how effectively capital is being employed. E.g. it a company's net work ( asset less liabilities) is $5 million and they earn $1 million a year, their annual return on equity is 20 percent. During our research, we analyzed many companies that earned substantial profits and provided competitive returns on their stockholders' equity. But some of the returns on equity we unearthed were mammoth by comparison to industry or business averages, indicating that these companies are far superior to their rivals in either their efficiencies or their productivity. Similarly we reviewed a company's return on assets and only the top performers made our final list.
  • Operating Income Per Employee - When comparing comapnies, net profit numbers can be misleading: they're affected by differing national tax rates and othen include a myriad of one-time charges or credits that may not be a reflection of actual income from operations. So we decided instead to use income from oprtations divided by the number of full-time, or full-time equivalent, employees, which seems a much better indication of a company's productivity. This criteria gives an edge to companies that pay their workers poorly, are notoriously cheap or beat up their suppliers on a regular basis. While this books is about doing more with less and not about being nice or winning popularity contests, we also believe the marketplace is ultimately fair, rewards value and punished bad operators. We required our chosen companies to have proven themselves by having been in business for ten years or more, which should mean we got rid of the chiselers.



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