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December 2012
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TD Magazine

Helpful Tips for Interpreting the Numbers

Intelligence3
Strategic human capital professionals understand the language of business and how to "speak profitability," writes Clare Novak in the December Infoline, "Performance Improvement: Making the Financial Case." Part of this skill is being comfortable with reading and interpreting financial statements, she says.

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Financial knowledge is virtually synonymous with business acumen. Keep the following three tips in mind when reading the financials for trends and insights.

Read the footnotes. They are bursting with information, including significant accounting policies and practices, income tax breakdowns, pension plans and retirement programs, and stock options. Retirement plans may be nearer and dearer to your heart than anything else—notes can indicate whether they are properly funded.

Don't skip the MD&A. Although the title is ridiculously long, the Management's Discussion and Analysis of Financial Condition and Results of Operations contains management's view of financial performance and the overall health of the company. Isn't that exactly what we need to know?

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Read a variety of financial statements for a balanced perspective. Financial statements are close relatives to one another—but not identical twins. Reading one statement is good; reading several is much better. Although the assets and liabilities on the balance sheet are reflected in the revenues, and expenses on the income statement, they are different views. Reading several financial reports will give a more well-rounded outlook of the company's financial health.

These tips were adapted from the December 2012 Infoline, "Performance Improvement: Making the Financial Case," by Clare Novak, available at www.astd.org/Infoline.

About the Author

The Association for Talent Development (ATD) is a professional membership organization supporting those who develop the knowledge and skills of employees in organizations around the world. The ATD Staff, along with a worldwide network of volunteers work to empower professionals to develop talent in the workplace.

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