Financial Literary (Part 1): The Income Statement

You may be able to work in Italy without speaking Italian. Perhaps you can find a career in Thailand without speaking Thai. There are even people who hold jobs without speaking the language of business. But in each case, it’s much better if you do speak the language.

While we know what languages are spoken in France and China, what is the language of business? The language of business is finance — and few ever make it to the executive level without speaking it. It’s how businesses measure success versus failure. Even nonprofit organizations must have their revenues exceed their costs to continue their work.

For our HR professionals, let’s talk about HR malpractice. Imagine a doctor giving you a checkup before prescribing you medicine. Now imagine that same doctor giving you a prescription without taking the time to examine you. Well, HR people do the equivalent of that all the time.

The only way to gauge the health of a company is to review its finances. When HR professionals, however, don’t speak the language of finance, they are forced to prescribe solutions without ever examining the health of the company. Imagine a long-term HR solution for a company whose liquidity ratios or burn rates reveal what is really needed is immediate relief.

The HR professional who can read an income statement knows — long before being told by the CEO — that their product is becoming commoditized, and either a new recruitment strategy or L&D initiative can restore margins.

In 18 minutes, take the first step toward financial literacy by understanding the income statement and some of the most fundamental financial ratios that serve as leading indicators to making the business decisions that help companies thrive.

Vincent Suppa works with startups and investors and teaches graduate courses at New York University. His email is suppa@suppa.org.

© Vincent Suppa 2016