Learning the Language of Finance: What Every HR Leader Should Know

“To be seen as a strategic partner, HR must understand how the business makes money.”

If HR wants to influence high-level decisions and earn the trust of the C-suite, it’s not enough to be experts in people. You also need to be fluent in the language of the business—and that means understanding how your organization operates financially.

Too often, HR is left out of critical conversations because we’re not speaking the same language as the CFO or FP&A teams. But that can change. When you understand financial metrics and how to apply them to your work, you position yourself as a powerful, informed partner who helps drive growth, manage risk, and increase profitability.

Start with the Basics: What HR Needs to Know

Here are key financial terms every HR leader should understand, explained in simple language:

• Profit and Loss (P&L) Statement: A report that shows the company’s revenue, costs, and expenses over a specific period—basically, it tells you whether the company made money or lost money.

• Balance Sheet: A snapshot of what a company owns (assets), owes (liabilities), and its overall value (equity) at a point in time.

• Revenue: The total income generated from selling products or services.

• Cost of Goods Sold (COGS): The direct costs to produce a product or deliver a service—such as materials or labor.

• Gross Profit Margin: Revenue minus COGS, showing how efficiently the company produces what it sells.

• Operating Expenses (OPEX): The ongoing costs of running the business (excluding production), such as salaries, rent, and technology.

• SG&A (Selling, General & Administrative): A subset of OPEX that includes salaries, HR, marketing, and admin costs.

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A way to measure core profitability by excluding financial and accounting adjustments.

• Net Profit Margin: What’s left after all expenses are paid—this is true profitability.

• Net Income: The company’s total profit after all costs and taxes are deducted.

• Cash Flow: The actual cash coming in and going out of the business—critical for understanding financial health and stability.

• ROI (Return on Investment): A measure of the return received compared to what was spent—HR can use ROI to show the impact of hiring, training, and development programs.

• Valuation: The total worth of a company, often based on performance, revenue, and growth potential.

• Net Working Capital: Current assets minus current liabilities—shows how much liquidity the company has to run day-to-day operations.

Why This Matters for HR

Understanding these financial metrics isn't about becoming an accountant—it’s about understanding how your organization operates and where HR can add the most value.

If you know how the company makes money, you can:

• Build a talent strategy that aligns with financial goals

• Partner effectively with finance and operations leaders

• Prioritize HR initiatives based on impact to profit, growth, or cost reduction

• Communicate your recommendations in terms that resonate with leadership

• Demonstrate ROI for people investments

• Strengthen HR’s role in business planning and forecasting

Learn from Your Finance Partners

The best way to improve your financial fluency is to build relationships with your CFO and FP&A (Financial Planning & Analysis) teams. Ask questions. Sit in on forecast and budget meetings. Review the P&L. Learn how performance is measured—and how you can influence those measures through people.

Finance isn’t a barrier to HR’s impact—it’s a bridge. And the more you understand how the business operates, the more equipped you are to lead it.

The Bottom Line

HR leaders who understand the business—and can speak to financial outcomes—aren’t just trusted. They’re essential.

You don’t need a finance degree to make a difference. You need curiosity, collaboration, and the willingness to connect the dots between people and performance.

Start with the fundamentals, build your confidence, and use your financial insight to lead with clarity, purpose, and measurable impact.

Ready to strengthen your financial fluency and become a more strategic contributor? Marstalla can help you upskill your team and align your HR strategy to real business metrics.

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