Knowing the Numbers a Critical HR Skill

By Kathy Gurchiek Jun 27, 2011
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LAS VEGAS—Fixed assets. EBITDA. Return on sales and return on investment.

HR professionals attending the sold-out seminar “Finance for Strategic HR Partners” at the Venetian Resort Hotel Casino on June 25, 2011, received a crash course in the basics of business finance from Marion Martelli, who presented the session during the Society for Human Resource Management’s (SHRM) 63rd Annual Conference & Exposition.

Martelli is president of Vinmar Associates Inc. in Palos Verdes Estates, Calif., and director of training and development at Bradley Lambert Inc. in Los Angeles. During the daylong seminar, she informed participants of key concepts such as how accounts are structured, identified financial terms and concepts, and explained how by understanding financial statements HR professionals can get insight into their organization’s operations and performance.

Short workbook assignments during the seminar included looking at different types of income statements to find the best way to determine a company’s financial performance and figuring out a company’s return on investment vs. return on sales as well as its operating and net income margins.

It’s important for HR professionals to possess business acumen, Martelli said, because it helps them understand the drivers of revenue and costs for their company.

“You have to understand the business, you have to understand the financial position of the company” to be effective, she said.

HR professionals become financially strategic, she said, by:

Understanding the business’s operating cycle.

Making financially sound decisions.

Controlling working capital.

Monitoring cash flow.

Managing corporate resources.

Improving bottom-line results.

HR plays a significant role in creating value throughout an organization, Martelli observed, by understanding the financial impact of decisions, hiring and training qualified employees, ensuring compliance with rules and regulations, and improving business practices and processes.

She emphasized that budgets can serve as benchmarks for an organization’s goals and objectives and can uncover potential bottlenecks before they occur. Financially savvy managers can learn of problems outside their own area, allowing them to be more responsive to the business’s overall needs.

Martelli noted the importance of reading the footnotes found in an organization’s annual financial statement. The statement is a requirement of the Securities and Exchange Commission and is available to the public, including the organization’s stockholders. Footnotes can run 20 to 60 pages and can contain illuminating information on a company’s patents and trademarks or potential legal issues.

Additionally, HR needs to be knowledgeable about the organization’s financial health in order to attract top employees, she said.

Potential hires “are pretty smart. … They can look not only at your financial reports but see how you stack up against others in your industry” and judge the company’s financial soundness, Martelli noted.

“You have to understand more than the candidates” when they start asking about the company’s balance sheet, she said.

Kathy Gurchiek is associate editor for SHRM Online.

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