Financial Statements
Often called the "P&L," this statement is also known as the Statement of Operations or Earnings Statement.
What is the Income Statement?
This ratio is calculated by dividing Revenue by Full-Time Equivalents (FTE).
What is Revenue Per Employee (or Productivity Factor)?
This metric calculates the true economic profit by subtracting a capital charge (Invested Capital x WACC) from NOPAT.
What is Economic Value Added (EVA)?
This concept suggests that money available today is worth more than the same amount in the future.
What is the Time Value of Money (TVM)?
According to Steven Director (and Dave Ulrich), HR managers must move from just cutting costs to doing this.
What is Creating Value?
This statement is also known as "Sources and Uses of Cash"
What is the Cash Flow Statement?
This specific metric captures the gross operating margin generated for each dollar of total human capital expense.
What is Human Capital ROI (HCROI)?
EVC is similar to EVA but typically uses this pre-tax input instead of NOPAT.
What is Operating Income?
If this value is greater than zero, the project is expected to generate more value than it costs and is a "good investment".
What is Net Present Value (NPV)?
More than 50% of corporate expenses fall into this category, yet they are often undermanaged.
What is Human Capital?
This is the starting point for calculating cash flow from operating activities using the indirect method.
What is Net Income?
Current Assets divided by Current Liabilities yields this liquidity indicator.
What is the Current Ratio?
This acronym stands for the "Weighted Average Cost of Capital" used to determine the cost of financing.
What is WACC?
This is the interest rate that makes the Net Present Value of an investment exactly zero.
What is the Internal Rate of Return (IRR)?
Dave Ulrich’s 1997 reading emphasizes that HR must focus on these rather than just HR-level inputs.
What are Business-level Outcomes (or Results)?
These two specific non-cash expenses must be added back to net income when calculating cash flow.
What are Depreciation and Stock-Based Compensation Expense?
Net Income divided by average Shareholders' Equity represents this profitability ratio.
What is Return on Equity (ROE)?
This type of company is one that may struggle to cover its cost of capital, potentially leading to "Pay Madness".
What is a Zombie Company?
In the "Lease vs. Buy" example, a higher WACC (15% vs 8%) can change the recommendation to favor this option.
What is Leasing?
These are the four components of a total HR Budget (HRB) that can be optimized by shifting funds.
What are Recruitment, Training, Compensation, and Administrative?
R+T+C+A
When calculating cash flow, an increase in this type of account is deducted because it means cash has gone out (or hasn't arrived yet).
What are Assets (e.g., Accounts Receivable or Inventory)?
According to research, this HR event can increase overall HR costs by 30% in the subsequent year.
What is (Voluntary) Attrition/Turnover?
While tangible assets dominated market value in 1975, these now account for approximately 90% of S&P 500 market value.
What are Intangible Assets?
This type of analytics defines future actions by testing potential outcomes to recommend the best course of action.
What is Prescriptive Analytics?
To create a compelling narrative, HR leaders should build these types of models to marry HC performance to financial performance.
What are Causal Models?