In large organizations, the decisions made by the employees are often not related to the bottom line. They'd rather have more direct reports than increase prof

In large organizations, the decisions made by the employees are often not related to the bottom line. They'd rather have more direct reports than increase profit margins. Middle managers feel powerful because they tell many people what to do, not because they do more with fewer people. Of course the investors want the company to be more efficient, but not always. This is true in the retail industry where razor thin margins are the goal. Software is the opposite. Imagine if Walmart made 35% margins like many software vendors. They'd be seen as gouging their customers and their prices would be too high. Target would create slimmer margins and take walmart's customers. Also, employee salaries are tax deductible as expenses, so companies that are intent on employee satisfaction -- something seen as beneficial for successful organizations -- tend to pay out much, if not all profits as bonuses. If a company is making lots of profits, they have to put that money somewhere, either investments in either infrastructure or labor and it's fairly easy to hire people. Otherwise, it goes to the government and no one likes that. Employees are expensive and hiring more is a quick way to legitimize a budget. Really, investors care about revenue growth more than anything. A company that is growing revenues and growing the share price is considered good. The profits could be paid out as dividends, but fewer companies are doing that and they are double taxed, so capital is more efficient if left in the organization. Exceptions are very large, old and stable companies, but that's a different kind of investor. Those are income investors, not growth investors like I was. It seems counter-intuitive because investors seldom have control over this kind of spending and revenue/employee isn't a popular metric for investing like PE, PEG, OM, or PM. For example, look at the key statistics for MSFT at yahoo. http://finance.yahoo.com/q/ks?s=MSFT+Key+Statistics http://finance.yahoo.com/q/ks?s=MSFT+Key+Statistics The number of employees appears nowhere and thus calculating revenue/employee is beyond the ability of most investors. Sometimes you can get # of employees on the profile page: http://finance.yahoo.com/q/pr?s=MSFT+Profile http://finance.yahoo.com/q/pr?s=MSFT+Profile Essentially, the rev/emp metric when making investment decisions is "outside the box." Most investors don't care or even think about using it as a filter, nor is it even really possible without better investing tools.