Does profit per employee predict stock returns?

01The question

Profit per employee is an intuitive measure of workforce productivity. This study tested whether it also contains useful information about subsequent stock returns, rather than assuming that an operationally attractive ratio must be an investment signal.

02The approach

The latest version uses company filings, disclosure timing and subsequent returns to limit the use of information that was not available at the time of an investment decision. It includes controlled models, confirmation samples, sensitivity checks and independent implementation checks.

The strict broad sample contained 249 complete annual observations across 75 issuers, covering formation years 2010 to 2016. The report distinguishes this from the larger, differently constructed earlier sample.

03What the study found

The broad sample did not establish reliable positive incremental forward-return information from profit per employee. The evidence did not justify turning the ratio into a stock screen.

This is a finding about the available sample and research design. It does not establish that workforce productivity is irrelevant to business value, or rule out every smaller relationship in a better-covered dataset.

04Limits and interpretation

Strict workforce and historical price coverage reduced the usable sample substantially. Several coverage, temporal-confirmation and survivorship checks were not satisfied, limiting the strength of any wider conclusion.

The study is useful as a test of a plausible investment idea and an illustration of the work needed to validate it. No investment performance or usable trading strategy is claimed.