Financial Analysis for HR Professionals
Expert-defined terms from the Professional Certificate in HR Budgeting course at London School of Planning and Management. Free to read, free to share, paired with a professional course.
Financial Analysis for HR Professionals Glossary #
Financial Analysis for HR Professionals Glossary
A #
A
1. Accrual Accounting #
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. This method provides a more accurate representation of a company's financial performance.
2. Asset #
Anything of value that a company owns, which can be tangible (such as equipment or property) or intangible (such as patents or goodwill).
3. Accounts Payable (AP) #
The amount of money a company owes to its suppliers for goods or services purchased on credit.
4. Accounts Receivable (AR) #
The amount of money owed to a company by its customers for goods or services provided on credit.
5. Amortization #
The process of spreading the cost of an intangible asset over its useful life. It is similar to depreciation for tangible assets.
B #
B
6. Benchmarking #
The process of comparing a company's performance metrics to those of its competitors or industry standards to identify strengths and weaknesses.
7. Balance Sheet #
A financial statement that provides a snapshot of a company's financial position at a specific point in time, showing its assets, liabilities, and equity.
8. Budget #
A financial plan that outlines a company's expected revenues and expenses over a specific period, typically a year. It serves as a roadmap for financial decision-making.
9. Break #
even Analysis: A financial calculation to determine the level of sales needed to cover all costs and reach the point where total revenue equals total expenses.
10. Business Intelligence (BI) #
Tools and technologies that help HR professionals analyze and interpret complex data to make informed business decisions.
C #
C
11. Cash Flow #
The movement of cash in and out of a business, including operating, investing, and financing activities. It is crucial for assessing a company's liquidity and financial health.
12. Cost #
Benefit Analysis: A method used to compare the costs of a particular course of action with the benefits it is expected to provide. This analysis helps HR professionals make informed decisions.
13. Capital Expenditure (CapEx) #
Funds used by a company to acquire, upgrade, or maintain physical assets such as property, equipment, or technology.
14. Capital Budgeting #
The process of evaluating and selecting long-term investment projects that align with a company's strategic goals and provide a positive return on investment.
15. Cost of Goods Sold (COGS) #
The direct costs associated with producing goods or services, including materials, labor, and overhead expenses.
D #
D
16. Depreciation #
The allocation of the cost of a tangible asset over its useful life. This accounting method reflects the gradual wear and tear of assets and helps in determining their current value.
17. Debt #
to-Equity Ratio: A financial metric that compares a company's total debt to its shareholders' equity, indicating its leverage and financial risk.
18. Dividend #
A portion of a company's profits distributed to its shareholders as a return on their investment.
19. DuPont Analysis #
A method of decomposing return on equity (ROE) into its component parts to assess a company's performance and identify areas for improvement.
20. Discounted Cash Flow (DCF) #
A valuation method that estimates the present value of future cash flows to determine the intrinsic value of an investment.
E #
E
21. Earnings Before Interest and Taxes (EBIT) #
A measure of a company's operating profitability, calculated by subtracting operating expenses from revenues.
23. Equity #
The value of an owner's interest in a company, calculated as assets minus liabilities. It represents the residual claim on a company's assets after deducting its debts.
24. Expense #
The cost incurred by a company in generating revenue, including salaries, rent, utilities, and other operational costs.
25. External Benchmarking #
Comparing a company's performance metrics with those of other companies in the same industry or sector.
F #
F
26. Financial Statement #
Reports that summarize a company's financial performance and position, including the income statement, balance sheet, and cash flow statement.
27. Fixed Costs #
Expenses that remain constant regardless of the level of production or sales, such as rent, insurance, and salaries.
28. Forecasting #
The process of predicting future trends and outcomes based on historical data, market analysis, and other relevant information.
29. Free Cash Flow (FCF) #
The cash generated by a company after accounting for capital expenditures and working capital requirements. It is a key measure of financial performance.
30. Financial Ratio #
A quantitative analysis tool used to evaluate a company's financial performance, liquidity, solvency, and efficiency.
G #
G
31. GAAP (Generally Accepted Accounting Principles) #
Standard accounting rules and guidelines that companies must follow when preparing financial statements.
32. Gross Margin #
The percentage of revenue that exceeds the cost of goods sold, indicating a company's ability to generate profit from its core business activities.
33. Goodwill #
An intangible asset that represents the excess of the purchase price of a company over the fair value of its identifiable net assets.
34. General Ledger #
A complete record of a company's financial transactions, organized by accounts and used to prepare financial statements.
35. Going Concern #
The assumption that a company will continue to operate indefinitely and meet its financial obligations in the foreseeable future.
H #
H
36. Human Capital #
The knowledge, skills, abilities, and experience of a company's employees, considered a valuable asset for achieving business objectives.
37. Horizontal Analysis #
A financial analysis method that compares financial data over multiple periods to assess trends and changes in performance.
38. HR Budgeting #
The process of allocating financial resources to HR activities, such as recruitment, training, compensation, and employee development.
39. Hurdle Rate #
The minimum rate of return required by a company to undertake a capital investment project, ensuring that the project generates value for shareholders.
40. HR Analytics #
The use of data analysis and statistical techniques to improve HR decision-making and drive strategic initiatives within an organization.
I #
I
41. Income Statement #
A financial statement that summarizes a company's revenues, expenses, and profits over a specific period, providing insights into its operational performance.
42. Internal Rate of Return (IRR) #
A financial metric used to evaluate the profitability of an investment project by calculating the discount rate that makes the net present value zero.
43. Inventory Turnover #
A measure of how efficiently a company manages its inventory by comparing the cost of goods sold to the average inventory level.
44. Intangible Asset #
Non-physical assets such as patents, trademarks, copyrights, and goodwill that have value but lack a physical form.
45. Investment #
The allocation of financial resources to assets or projects with the expectation of generating future income or profit.
J #
J
46. Job Costing #
A method of allocating costs to specific jobs or projects to determine their profitability and accurately price products or services.
47. Journal Entry #
A record of a financial transaction in a company's accounting system, showing the debit and credit entries to maintain the balance of accounts.
48. Just #
in-Time (JIT) Inventory: A production strategy that aims to minimize inventory levels by receiving goods only when needed, reducing storage costs and waste.
49. Job Order Costing #
A costing method used to track the costs of manufacturing a unique product or service based on the specific requirements of a customer.
50. Joint Venture #
A business arrangement in which two or more parties collaborate on a specific project or venture, sharing risks, costs, and profits.
K #
K
51. Key Performance Indicator (KPI) #
Quantifiable metrics used to evaluate the success of an organization, department, or individual in achieving strategic objectives.
52. Knowledge Management #
The process of capturing, sharing, and applying knowledge within an organization to improve decision-making, innovation, and performance.
53. Kurtosis #
A statistical measure that indicates the shape of a distribution's tail relative to its peak, providing insights into the distribution's symmetry and outliers.
54. Knowledge Worker #
An employee whose primary role involves creating, analyzing, or sharing knowledge to drive organizational performance and innovation.
55. Key Ratio Analysis #
The process of evaluating a company's financial performance by analyzing key financial ratios such as profitability, liquidity, and solvency.
L #
L
56. Labor Cost #
The total cost incurred by a company to compensate its employees, including wages, benefits, payroll taxes, and other related expenses.
57. Leverage #
The use of debt or borrowed funds to finance operations or investments, magnifying returns but also increasing financial risk.
58. Liquidity #
The ability of a company to meet its short-term financial obligations using its current assets, indicating its financial stability and cash flow management.
59. Long #
Term Debt: Borrowed funds that must be repaid over a period exceeding one year, typically used to finance capital investments or expansion projects.
60. Market Capitalization #
The total value of a company's outstanding shares of stock, calculated by multiplying the current share price by the number of shares outstanding.
M #
M
61. Management Accounting #
The process of preparing financial information and analysis for internal decision-making, planning, and control within an organization.
62. Margin Analysis #
A financial analysis technique that evaluates the profitability of individual products, services, or business units based on their contribution margins.
63. Merger and Acquisition (M&A) #
The consolidation of companies through the purchase, sale, or combination of assets to achieve strategic growth or operational synergies.
64. Net Income #
The total profit earned by a company after deducting all expenses, taxes, and interest from its revenue, also known as the bottom line.
65. Net Present Value (NPV) #
A financial metric that calculates the present value of future cash flows generated by an investment, helping to assess its profitability.
N #
N
66. Non #
Financial Performance Metrics: Indicators used to evaluate an organization's performance that are not directly related to financial outcomes, such as customer satisfaction or employee engagement.
67. Net Profit Margin #
A financial ratio that measures a company's profitability by comparing its net income to its total revenue, indicating how efficiently it generates profit.
68. Net Worth #
The value of assets owned by an individual or company after deducting liabilities, representing the equity or ownership interest in the entity.
69. Normal Distribution #
A bell-shaped probability distribution in which data points are symmetrically distributed around the mean, with most values clustering near the average.
70. Non #
Operating Income: Revenue generated by a company that is not directly related to its core business activities, such as investment income or gains from asset sales.
O #
O
71. Operating Expenses #
The costs incurred by a company in its day-to-day operations, including salaries, rent, utilities, and administrative expenses.
72. Operating Income #
The profit generated by a company from its primary business activities, calculated by subtracting operating expenses from operating revenues.
73. Overhead Costs #
Indirect expenses that are necessary to support a company's operations but cannot be directly attributed to a specific product or service.
74. Operating Cash Flow (OCF) #
The cash generated by a company's core business activities, excluding financing and investing activities, providing insights into its operational efficiency.
75. Outsourcing #
The practice of contracting certain business functions or processes to external service providers to reduce costs, improve efficiency, or access specialized expertise.
P #
P
76. Profit and Loss Statement #
Another term for the income statement, which shows a company's revenues, expenses, and net income over a specific period.
77. Payroll #
The total amount of compensation paid by a company to its employees, including salaries, wages, bonuses, and benefits.
78. Payback Period #
The time required for an investment to recoup its initial cost through cash flows, indicating the speed at which the investment generates returns.
79. Present Value #
The current worth of a future cash flow or series of cash flows, discounted at a specific rate to account for the time value of money.
80. Profit Margin #
A financial ratio that measures a company's profitability by comparing its net income to its total revenue, indicating its efficiency in generating profit.
Q #
Q
81. Quantitative Analysis #
The use of numerical data and statistical methods to analyze and interpret financial information, enabling more accurate decision-making.
82. Quick Ratio #
A financial ratio that measures a company's ability to cover its short-term liabilities with its most liquid assets, excluding inventory.
83. Quality Costs #
The expenses incurred by a company to prevent, detect, and correct defects or errors in its products or services, ensuring high quality standards.
84. Qualified Retirement Plan #
A tax-advantaged retirement savings plan that meets specific requirements set by the Internal Revenue Service (IRS) to provide benefits to employees.
85. Quarterly Earnings Report #
A financial statement released by a company every three months, summarizing its financial performance during the quarter.
R #
R
86. Return on Investment (ROI) #
A financial metric that measures the profitability of an investment by comparing the return generated to the cost of the investment.
87. Revenue #
The total income generated by a company from its core business activities, including sales, services, and other sources of income.
88. Risk Management #
The process of identifying, assessing, and mitigating risks to minimize potential losses and protect an organization's assets and reputation.
89. Ratio Analysis #
The evaluation of a company's financial performance using various ratios that compare different aspects of its operations, profitability, and solvency.
90. Regression Analysis #
A statistical technique used to identify and quantify the relationship between two or more variables, enabling prediction and trend analysis.
S #
S
91. Strategic Planning #
The process of defining an organization's long-term goals and objectives, as well as the strategies and actions needed to achieve them.
92. SWOT Analysis #
A strategic planning tool that assesses a company's strengths, weaknesses, opportunities, and threats to develop effective business strategies.
93. Securities and Exchange Commission (SEC) #
A government agency responsible for regulating the securities industry, enforcing securities laws, and protecting investors.
94. Stock Options #
Rights granted to employees to purchase company stock at a specified price within a certain period, providing them with an ownership stake.
95. Stock Split #
A corporate action in which a company divides its existing shares into multiple shares, reducing the share price while increasing the number of shares outstanding.
T #
T
96. Time Value of Money #
The principle that a dollar received today is worth more than a dollar received in the future due to its potential earning capacity.
97. Total Cost of Ownership (TCO) #
The comprehensive cost associated with owning and operating an asset over its entire life cycle, including acquisition, maintenance, and disposal costs.
98. Throughput Accounting #
A management accounting approach that focuses on maximizing the flow of products or services through a system to increase profitability.
99. Treasury Stock #
Shares of a company's own stock that have been repurchased by the company and are held in its treasury, reducing the number of outstanding shares.
100. Time Series Analysis #
A statistical technique that examines patterns, trends, and relationships in sequential data points over time, enabling forecasting and decision-making.
U #
U
101. Unearned Revenue #
Income received by a company in advance for goods or services that have not yet been delivered, requiring the company to fulfill its obligations in the future.
102. Unit Cost #
The average cost of producing one unit of a product or service, calculated by dividing total production costs by the number of units produced.
103. Usury #
The practice of charging excessively high interest rates on loans, often considered unethical or illegal depending on the jurisdiction.
104. Utilization Rate #
A metric used to measure the efficiency of resources, such as employees or equipment, by comparing actual usage to available capacity.
105. Underwriting #
The process by which financial institutions assess and assume the risk of insuring or investing in securities, loans, or other financial instruments.
V #
V
106. Variable Costs #
Expenses that fluctuate with changes in production or sales volume, such as raw materials, direct labor, and sales commissions.
107. Valuation #
The process of determining the intrinsic value of an asset, investment, or company based on various financial metrics, market conditions, and future prospects.
108. Variance Analysis #
A technique used to compare actual financial performance to budgeted or expected performance, identifying differences and their causes.
109. Vertical Analysis #
A financial analysis method that compares each line item on a financial statement to a base item, such as total revenue or total assets.
110. Value Chain #
The series of activities that a company performs to deliver