Document Sample

```					Headcount Analysis
Understanding Common-sizing To common-size, you typically divide every number by the same number. It's conventional, for example, to common-size an income statement by dividing each entry by the total sales for the period covered by the statement. Doing so converts each dollar figure, from cost of goods sold to operating income to income taxes to operating expenses, to its percentage in terms of total sales.
For Example: The rationale for common-sizing in terms of total sales is that most of a company's activities depend on its revenues. The more the company sells, the greater its cost of goods sold. In a well-managed firm, greater revenues result in greater profits. And, although there are exceptional cases, a higher level of sales tends to cause a higher level of salaries. Because total sales exerts an effect on so many of the items in an income statement, a commonsized statement is usually based on total sales.

1. Both total gross profit and average gross profit are sensitive to the number of sales employees.

2. Total salary expense is sensitive to the total number of employees, but average salary expense is constant. The result, if management's assumptions pay off, is that they can actually increase total headcount and cause XYZ Widgets’ EBITDA to become positive, even during its traditionally money-losing months. The assumptions involved are optimistic, particularly the notion that making some employees full-time salespeople will double the peremployee gross profit. But even if the per-employee increase in gross profit is only 50 percent, the results would increase the profit in good months, and reduce the loss in bad months.

increase the profit in good months, and reduce the loss in bad months. In large corporations, common-size analysis on the basis of headcount is done frequently and is especially tricky. It often happens that one division reduces its headcount so as to decrease its expenses, hoping that as it does so its revenues will not suffer. It can also happen that the employees who leave that division find employment in another division of the same large corporation: usually, one that is not currently under pressure to reduce its expenses. The net result is that, although one division might improve its profitability through a reduction in expenses, another division's profitability suffers be-cause of an increase in expenses. Then, the corporation, considered as a whole, has probably not improved its profitability. However, it has managed to disrupt people's lives, increased levels of anxiety among those whose positions have been retained, and probably increased non-productive costs because overhead procedures usually change when people leave. Therefore, when divisions report that they have reduced headcount and consequently increased their profitability, it is incumbent on them to estimate the effect of doing so on the corporation as a whole. Although this estimate is often a difficult task, it is a necessary ingredient of an accurate estimate of the effects of their analysis and consequent actions.

Headcount Gross profit Salaries Payroll taxes Lease Phone Supplies Insurance Total OPEX

Jan 5 \$42,589 \$20,000 \$2,240 \$1,000 \$500 \$200 \$500 \$24,440

Feb 5 \$53,765 \$20,000 \$2,240 \$1,000 \$500 \$200 \$500 \$24,440

Mar 5 \$38,846 \$20,000 \$2,240 \$1,000 \$500 \$200 \$500 \$24,440 \$14,406 \$7,769 \$4,000 \$448 \$200 \$100 \$40 \$100 \$4,888 \$2,881

Apr 5 \$15,214 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$6,446) \$3,043 \$3,500 \$392 \$200 \$100 \$40 \$100 \$4,332 (\$1,289)

May 4 \$20,512 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$1,148) \$5,128 \$4,375 \$490 \$250 \$125 \$50 \$125 \$5,415 (\$287)

Jun 4 \$21,213 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$447) \$5,303 \$4,375 \$490 \$250 \$125 \$50 \$125 \$5,415 (\$112)

Jul 4 \$20,674 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$986) \$5,169 \$4,375 \$490 \$250 \$125 \$50 \$125 \$5,415 (\$247)

Aug 3 \$12,698 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$8,962) \$4,233 \$5,833 \$653 \$333 \$167 \$67 \$167 \$7,220 (\$2,987)

EBITDA: Actual \$18,149 \$29,325 Common-sized By Employee Gross profit \$8,518 \$10,753 Salaries Payroll taxes Lease Phone Supplies Insurance Total OPEX EBITDA: Actual \$4,000 \$448 \$200 \$100 \$40 \$100 \$4,888 \$3,630 \$4,000 \$448 \$200 \$100 \$40 \$100 \$4,888 \$5,865

Sep 3 \$11,854 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$9,806) \$3,951 \$5,833 \$653 \$333 \$167 \$67 \$167 \$7,220 (\$3,269)

Oct 3 \$12,779 \$17,500 \$1,960 \$1,000 \$500 \$200 \$500 \$21,660 (\$8,881) \$4,260 \$5,833 \$653 \$333 \$167 \$67 \$167 \$7,220 (\$2,960)

Nov 3 \$55,155 \$20,000 \$2,240 \$1,000 \$500 \$200 \$500 \$24,440 \$30,715 \$18,385 \$6,667 \$747 \$333 \$167 \$67 \$167 \$8,147 \$10,238

Dec 3 \$52,702 \$20,000 \$2,240 \$1,000 \$500 \$200 \$500 \$24,440 \$28,262 \$17,567 \$6,667 \$747 \$333 \$167 \$67 \$167 \$8,147 \$9,421

Totals \$358,001 \$222,500 \$24,920 \$12,000 \$6,000 \$2,400 \$6,000 \$273,820 \$84,181 \$94,079 \$59,458 \$6,659 \$3,217 \$1,608 \$643 \$1,608 \$73,194 \$20,884

Enter Average Sales Per Salesperson Enter Average Salary Per Employee Jan Feb Headcount (staff) 2 2 Headcount (sales) 4 4 Gross profit \$52,552 \$52,552 Salaries Payroll taxes Lease Phone Supplies Insurance Total OPEX \$32,700 \$3,662 \$1,000 \$562 \$142 \$500 \$38,566 \$32,700 \$3,662 \$1,000 \$737 \$263 \$500 \$38,862 \$13,690 \$8,759 \$5,450 \$610 \$167 \$123 \$44 \$83 \$6,477 \$2,282

\$13,138 \$5,450 Mar 2 4 \$52,552 \$32,700 \$3,662 \$1,000 \$608 \$132 \$500 \$38,602 \$13,950 \$8,759 \$5,450 \$610 \$167 \$101 \$22 \$83 \$6,434 \$2,325

Apr 2 4 \$52,552 \$32,700 \$3,662 \$1,000 \$678 \$299 \$500 \$38,839 \$13,713 \$8,759 \$5,450 \$610 \$167 \$113 \$50 \$83 \$6,473 \$2,285

May 1 5 \$65,690 \$32,700 \$3,662 \$1,000 \$486 \$106 \$500 \$38,455 \$27,235 \$10,948 \$5,450 \$610 \$167 \$81 \$18 \$83 \$6,409 \$4,539

Jun 1 5 \$65,690 \$32,700 \$3,662 \$1,000 \$551 \$177 \$500 \$38,591 \$27,099 \$10,948 \$5,450 \$610 \$167 \$92 \$30 \$83 \$6,432 \$4,517

Jul 1 5 \$65,690 \$32,700 \$3,662 \$1,000 \$531 \$173 \$500 \$38,566 \$27,124 \$10,948 \$5,450 \$610 \$167 \$88 \$29 \$83 \$6,428 \$4,521

EBITDA \$13,986 Common-sized By Employee Gross profit \$8,759 Salaries Payroll taxes Lease Phone Supplies Insurance Total OPEX EBITDA \$5,450 \$610 \$167 \$94 \$24 \$83 \$6,428 \$2,331

Aug 2 6 \$78,828 \$43,600 \$4,883 \$1,000 \$510 \$170 \$500 \$50,662 \$28,166 \$9,854 \$5,450 \$610 \$125 \$64 \$21 \$63 \$6,333 \$3,521

Sep 2 6 \$78,828 \$43,600 \$4,883 \$1,000 \$489 \$166 \$500 \$50,638 \$28,190 \$9,854 \$5,450 \$610 \$125 \$61 \$21 \$63 \$6,330 \$3,524

Oct 2 6 \$78,828 \$43,600 \$4,883 \$1,000 \$468 \$162 \$500 \$50,613 \$28,215 \$9,854 \$5,450 \$610 \$125 \$58 \$20 \$63 \$6,327 \$3,527

Nov 2 7 \$91,966 \$49,050 \$5,494 \$1,000 \$447 \$158 \$500 \$56,649 \$35,317 \$10,218 \$5,450 \$610 \$111 \$50 \$18 \$56 \$6,294 \$3,924

Dec 2 8 \$105,104 \$54,500 \$6,104 \$1,000 \$426 \$155 \$500 \$62,684 \$42,420 \$10,510 \$5,450 \$610 \$100 \$43 \$15 \$50 \$6,268 \$4,242

Totals

\$840,832 \$463,250 \$51,884 \$12,000 \$6,492 \$2,103 \$6,000 \$541,729 \$299,103 \$118,169 \$65,400 \$7,325 \$1,753 \$968 \$311 \$876 \$76,632 \$41,537

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