Labor-related ratios and multipliers are the key indicators of financial performance and are the focus of financial control.
1. Net Multiplier (Net Revenue divided by Direct Labor).
2. Revenue Factor (Net Revenue divided by Total Labor) or (Utilization Rate times Net Multiplier).
3. Overhead Rate (Indirect Expense divided by Direct Labor).
4. Operating Profit Multiplier (Operating Profit divided by Direct Labor).
5. Utilization Rate (Total Labor Dollars or Hours divided by Direct Labor Dollars or Hours).
6. Net Revenue per full-time-equivalent.
7. Operating Profit per full-time-equivalent.
These key indicators of financial performance are comparable to firms of various sizes and the same firm from year to year.
Analysis with these labor related ratios and multipliers:
- require comparison and is most useful when relating current experience to prior performance and to a budget.
- must recognize time so a Time Analysis Report must be available.
- are more useful when studied over several reporting periods to establish patterns.
- is meaningful only if the manager understands the basis, limitations and values of each ratio.
- enhance the meaning and understanding of the values when used on a continuing basis.