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Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy

Book Description

HR leaders and practitioners: master the financial analysis skills you need to become true strategic business partners, gain an equal seat at the table, and get boardroom and CFO buy-in for your initiatives! In this one-of-a-kind book, Dr. Steven Director covers everything mid-to-senior-level HR professionals need to formulate, model, and evaluate their HR initiatives from a financial perspective. Drawing on his unsurpassed expertise working with HR executives, he walks through each crucial financial issue associated with strategic talent management, including quantifiable links between workforces and business value, cost-benefit analyses of HR and strategic financial initiatives, and specific issues related to total rewards programs, including stock, stock options, and pension costs. Unlike other finance books for non-financial managers, Financial Analysis for HR Managers focuses entirely on core HR issues. Director helps you answer questions such as: How do you model HR's financial role in corporate strategic initiatives such as the introduction of a new product line? How do you select bonus drivers to send the right signals to managers (and uncover suboptimal hidden signals you might be sending now)? How do you design compensation packages that are fully consistent with your goals? How do you identify and manage pension-finance costs and risks that can dramatically impact the long-term financial health of the business? HR leaders and aspiring leaders are under unprecedented pressure to provide credible, quantitative answers to questions like these. This is the one and only book that will help them do so.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication Page
  4. Contents
  5. Acknowledgments
  6. About the Author
  7. 1. Business Strategy, Financial Strategy, and HR Strategy
    1. Is HR Weakest in the Most Critical Areas?
    2. You Don’t Need to Be a Quant to Make Good Business Decisions
    3. Which HR Decisions Are Important?
    4. What This Book Attempts to Do
  8. 2. The Income Statement: Do We Care About More Than the Bottom Line?
    1. Income Statements
    2. Profit Can Be Measured at Various Levels
    3. Seeing the Big Picture
    4. The Bottom Line
  9. 3. The Balance Sheet: If Your People Are Your Most Important Asset, Where Do They Show Up on the Balance Sheet?
    1. Assets on the Balance Sheet
    2. Liabilities on the Balance Sheet
    3. Which Numbers on a Balance Sheet Can You Believe?
    4. Use Caution When Using Published Financial Ratios
  10. 4. Cash Flows: Timing Is Everything
    1. Cash Flow Information from the Income Statement
    2. Cash Flow Information from the Balance Sheet
  11. 5. Financial Statements as a Window into Business Strategy
    1. Common Size Financial Statements
    2. Connecting the Dots
    3. Return on Equity
    4. Differential Impact of Financial Leverage
    5. The Big Picture
    6. The Link Between HR Strategy and Business Strategy
  12. 6. Stocks, Bonds, and the Weighted Average Cost of Capital
    1. Why Is the Cost of Capital Important to HR Managers?
    2. Where Does the Money Come From?
    3. Is Your Company of Above Average or Below Average Risk?
    4. Capital Costs in 2012
  13. 7. Capital Budgeting and Discounted Cash Flow Analysis
    1. Calculating Present Values
    2. Do the Future Benefits Justify the Upfront Costs?
    3. Using DCF on the Job
    4. HR Applications
    5. Money Has Time Value Because of Interest Rates, Not Because of Inflation
  14. 8. Financial Analysis of Human Resource Initiatives
    1. Decisions Involving Cash Flow That Occur at Different Points in Time
    2. Allocating Budgets When There Are a Larger Number of Alternatives
    3. Calculating NPV of Specific HR Initiatives
    4. Determining Program Impacts Using Pre-Post Changes
    5. Determining Program Impacts Using Comparison Groups
    6. What Is Your Firm’s HR Budget?
    7. Is Your HR Budget Allocation Optimal?
    8. Maximizing the ROI on Your Analysis Efforts
  15. 9. Financial Analysis of a Corporation’s Strategic Initiatives
    1. Estimating the NPV of a Strategic Initiative Such as a New Product Introduction
    2. Using the Spreadsheet to Structure the Deal
    3. Using Monte Carlo Simulations to Model Risk and Uncertainty
  16. 10. Equity-Based Compensation: Stock and Stock Options
    1. How Do Stock Options Work?
    2. What Is the Intrinsic Value of an Option? What’s the Time Value of an Option?
    3. Are Options High-Risk Investments?
    4. Do Employees Prefer Options or Stock?
    5. Understanding the Inputs to the Black-Scholes Model
    6. Firms Must Disclose the Methods and the Assumptions They Use to Cost Stock Options
    7. Using Monte Carlo Simulation to Determine the Value of Employee Stock Options
    8. Dilution, Overhang, and Run Rates
    9. Equity Compensation Is One Tool for Aligning Executive and Shareholder Interests
  17. 11. Financial Aspects of Pension and Retirement Programs
    1. Defined Benefit (DB) Plans
    2. Defined Contribution (DC) Plans
    3. Hybrid Plans
    4. The Shift from DB Plans to DC Plans
    5. Pension Accounting
    6. Why Base Costs on the Expected Rather Than the Actual Return on Plan Assets?
    7. How Do Firms Select the Appropriate Discount Rate?
    8. DB Plans Encourage Retirement
    9. The Future?
  18. 12. Creating Value and Rewarding Value Creation
    1. Aligning Pay with Performance
    2. Managing EPS Expectations
    3. Putting It All Together
    4. Appendix A: A Sample of Financial Measures Currently in Use
  19. Bibliography
  20. Endnotes
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 5
    5. Chapter 6
    6. Chapter 7
    7. Chapter 8
    8. Chapter 9
    9. Chapter 10
    10. Chapter 11
    11. Chapter 12
  21. Index
  22. FT Press