If you want to lead effectively as general counsel, you need more than legal instincts — you need financial fluency. The best GCs understand how numbers tell a story about performance, value, and risk.
Recently, Chaka consulted with the GC of a multibillion-dollar manufacturing company. She shared an example that highlights exactly why financial literacy is a core competency for every modern general counsel.
Her company was revisiting its executive compensation framework. The board wanted to focus on two key financial metrics: Earnings Per Share (EPS) and Working Capital Turnover (WCT). Together, these numbers reflect profitability, efficiency, and the strength of operational management — areas where the legal department’s influence often runs deeper than people think.
EPS measures how much profit a company generates per share of stock. It’s calculated by dividing earnings by shares outstanding.
Simple, right? Not always. The key question is which earnings are being used — those reported under GAAP or an adjusted figure that excludes one-time events. Adjusted earnings might remove unusual gains or losses, such as proceeds from a divestiture or expenses related to discontinued operations.
There are also two share counts to consider: basic shares and fully diluted shares. Basic shares represent the company’s common stock currently outstanding. Fully diluted shares include potential shares that could be created if all convertible securities were exercised. You can find these figures on the balance sheet.
EPS is central to how investors evaluate value and performance. A higher EPS generally signals stronger profitability and can drive higher share prices.
For a GC, understanding this calculation is essential — not to crunch the numbers, but to ensure the disclosure, consistency, and legal integrity of how those numbers are presented.
When compensation metrics are tied to EPS, the GC should work closely with several key leaders:
Together, this group must ensure:
It’s also smart to encourage a culture of cost awareness. When the business focuses on reducing unnecessary expenses, it directly drives earnings and boosts EPS — and Legal can play a supporting role by ensuring contracts, compliance, and risk management align with those goals.
Working Capital Turnover measures how efficiently a company uses its working capital to generate revenue. The formula is straightforward:
WCT = Net Revenue ÷ Average Working Capital
Net revenue is total revenue minus returns, allowances, and discounts. Working capital is current assets minus current liabilities.
A high WCT means the business is generating more sales per dollar of working capital — an indicator of strong operational performance.
For legal teams, understanding WCT isn’t just about accounting. It’s about spotting risk, shaping contracts, and demonstrating measurable business value.
Revenue recognition is a common area where financial and legal oversight intersect. Legal should collaborate with the CFO and accounting leaders to ensure revenue is recognized properly — when it’s earned and realizable.
Be alert to channel stuffing, a red flag where companies ship more products to distributors than they can sell, inflating sales and lowering inventory. It artificially boosts WCT by raising revenue and reducing assets. Detecting and preventing this practice protects the company’s integrity and compliance posture.
Legal can also improve working capital efficiency by influencing contract terms.
By helping shape these agreements, Legal directly contributes to better cash flow — proving that legal strategy and business performance are tightly connected.
When the legal department helps drive WCT higher, it’s not just mitigating risk; it’s adding tangible financial value.
Legal leaders who understand metrics like EPS and WCT can engage with the board and C-suite as true business partners. They know how compensation decisions, financial disclosures, and investor expectations intersect — and how to guide the company through them with clarity and confidence.
That’s why Chaka Strategy created a specialized course for General Counsels and Deputy General Counsels who want to deepen their command of finance and strategy.
If you want to move from reactive advisor to strategic leader, this program is for you. You’ll learn:
Learn more and enroll in the GC Finance & Strategy Course →
Every great GC understands that finance and law are two sides of the same leadership coin. When you can read the numbers, question the assumptions, and see the story behind the data, you gain credibility — and influence.
Finance fluency isn’t optional anymore. It’s a differentiator. Start building it today.
