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Wages and Revenues and Profits

Sigma Investment Counselors

April 28, 2014

The issue of a new minimum wage is back in the headlines with action contemplated in the Senate.  While much of the discourse is political, investors should recognize that businesses have different business strategies and that changes in wages are likely to be more material to some than to others.

Differences in business models are numerous and this is not a suitable forum for an extensive discussion.  However, there are two data points that seem quite relevant.  Revenues per employee and net income per employee.  For example:

Costco employs approximately 147,000 individuals and its annual revenues per employee approximate $715,000 and net income per employee approximates $13,600.  Wal-Mart, another retailer with a very different business model, employs approximately 2.2 million associates with annual sales of $217,000 and net income of $7,700 per employee.

Note: A standard work year, based on a 40 hour week, approximates 2000 hours.

An increase in the minimum wage is likely to have differing impacts on these two retailers.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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