Magazine article Training & Development

Investing in Workforce Training Improves Financial Success

Magazine article Training & Development

Investing in Workforce Training Improves Financial Success

Article excerpt

There is definitive evidence that investments in workforce training can predict a company's future financial performance, including its total stockholder return (TSR), according to research recently released by ASTD. ASTD also notes that investors can improve their portfolio performance if they have access to information about training expenditures when making investment decisions.

After a major study of training practices and outcomes of 575 U.S.-based, publicly traded firms during 1996, 1997, and 1998, ASTD found that companies that invested $580 more in training per employee than the average company in the study improved their TSR the next year by 6 percentage points (even after adjusting for other factors).

With the help of Saba consultants, ASTD examined the average annual training expenditures of the 575 firms. Those in the top half of the study group (that spent more on training) had an average TSR the following year of 36.9 percent, while firms in the bottom half had an average TSR of only 19.8 percent. (For comparison purposes, the S&P 500 had an annual return of 25.5 percent during that same period.) Thus, firms in the top half had a TSR that was 86 percent higher than firms in the bottom half and 45 percent higher than the market average.

Taking other factors into account, ASTO found that knowing a firm's education and training investment improves the power to predict its future TSR by 50 percent. "It's clear that a firm's commitment to workplace learning is directly linked to its bottom line--and investors, Wall Street, and financial analysts should pay attention," says Mark Van Buren, ASTD's director of research.

ASTD researchers also found a similar pattern when looking at gross-profit margin, income per employee, and price-to-book ratios. Firms in the top quarter of the study group that invested on average $1,595 per employee in training experienced 24 percent higher gross-profit margins, 218 percent higher income per employee, and 26 percent higher price-to-book ratios than firms in the bottom quarter that invested on average $128 per employee. …

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