19. Financial optics of the Pros

May 01, 2026 03:50 · 8:17 · English · Whisper Turbo · 2 speakers

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Lecture Index

0:11

S… Speaker 2 (19. Financial optics of the Pros)

Getting your financial information into a trend format is the first step to world-class financial optics. Trend format is simply multiple income statements over multiple time periods laid out side by side right next to each other on one spreadsheet so that you can easily see the changes in any category from one time period to the next.

0:40

S… Speaker 2 (19. Financial optics of the Pros)

There are two additional formats your income statement can be converted into which will give you vastly superior financial optics so that you can make vastly superior business decisions. The first one is an income statement could be presented in percentages by common sizing.

1:02

S… Speaker 2 (19. Financial optics of the Pros)

Common sizing your income statement means converting every monetary amount into a percentage of total revenue. The idea of common sizing is to display how much each expense category is as a percentage of revenue. If revenue is a million dollars and cost of goods sold is $750,000, your cost of goods sold is 75% of revenue.

1:31

S… Speaker 2 (19. Financial optics of the Pros)

So, on a common-size basis, cost of goods sold is 75%. If payroll is $100,000, the payroll would represent 10% of revenue, and therefore the payroll common-size number is 10%. Displaying your income statement in percentages instead of dollars radically transforms your optics.

1:56

S… Speaker 2 (19. Financial optics of the Pros)

When we see our revenue go up, we logically assume that the amount of money spent on cost of goods sold or payroll will also go up. However, we would not want to see these expenses increase as a percentage of revenue. If our expenses are rising faster than our revenue, we are becoming less and less efficient. In other words, we're making less and less on more and more.

2:26

S… Speaker 2 (19. Financial optics of the Pros)

General Motors tried that strategy, and it didn't work out too well for them. Knowing that a specific expense has gone up or down by a specific monetary amount is useful, but seeing the expense represented as a percentage of revenue is critical to seeing the magnitude of escalation in relation to revenue.

2:51

S… Speaker 2 (19. Financial optics of the Pros)

Candidly, common sizing is the second most powerful income statement financial optics tool available to you to drive profitability. The second alternative presentation of an income statement should be on a per unit basis. Depending on your currency, it might be dollars per unit or euros, yen, or pounds.

3:18

S… Speaker 1 (19. Financial optics of the Pros)

Whatever currency you use on a per unit basis, let's say you're in the restaurant business. If your per unit measure is the number of customers serviced, you would divide every line item or account on the income statement by the number of customers served during that time period.

3:40

S… Speaker 1 (19. Financial optics of the Pros)

Now you're looking at the income statement that's expressed in how much your revenue was per customer and how much you spent on food or cooks or rent per customer. Dollars per unit analysis is the single most powerful income statement optics tool you have to control and drive profitability, bar none.

4:07

S… Speaker 1 (19. Financial optics of the Pros)

If you can see what your revenue and expenses are on a per unit basis, your brain can now go to work on tweaks and strategies that will knock pennies per unit off your labor cost, for example, or add pennies per unit to your revenue. A few cents per unit, one way or the other, is a significant number to your bottom line.

4:30

S… Speaker 1 (19. Financial optics of the Pros)

Knowing that you're spending $31.37 in labor on a per unit basis is exceptionally more powerful than seeing a lump number of $233,900 on an income statement. Walmart has perfected the art of per unit revenue and cost analysis. Like any successful organization which has demonstrated sustainable success, Walmart is a measuring freak.

5:01

S… Speaker 1 (19. Financial optics of the Pros)

When they're stocking their stores, they ask questions like, if we increase the square footage of Coca-Cola by two inches and take two inches away from Pepsi, are we going in the right direction on the revenue per square foot?

5:17

S… Speaker 1 (19. Financial optics of the Pros)

It really is that specific. They know exactly how many dollars per square foot Pampers is generating in revenue and how many dollars per square foot Uggies is providing. And they know what happens if a particular product is moved up or down on the shelves or closer to the end cap or more in the middle of the aisle, performing some R&D, research and duplicate.

5:46

S… Speaker 1 (19. Financial optics of the Pros)

on what the big boys are doing is a really good idea. And all the big boys are measuring on a per-unit basis. Measuring revenue and expenses per unit over an extended period of time is a game-changing idea that will spark your thinking and put profits in your genes. I already know what you're thinking. Keith, this is a lot of work.

6:13

S… Speaker 1 (19. Financial optics of the Pros)

I know. That's just one more reason why I created CFO School Board. We display your financial information in a trend format and do the common size and per unit calculations for you.

6:27

S… Speaker 1 (19. Financial optics of the Pros)

CFO's school board even takes it one step further. We display the monetary changes from one time period to the next and then identify which specific expense, revenue item, or balance sheet account needs immediate attention. We call it DIG HERE.

6:48

S… Speaker 1 (19. Financial optics of the Pros)

Start using trends, common sizing, and per unit measurements, and you'll be stunned at the clarity and the optics that you have about your numbers. Trend analysis allows you to figure out where you're getting better, where you're getting worse, how much money you're either leaving on the table as a result of getting worse, or how much money you picked up as a result of getting better. Common sizing means thinking in percentages.

7:18

S… Speaker 1 (19. Financial optics of the Pros)

By using percentages, you can more accurately and quickly gauge if a business is doing comparatively worse or better than the year before. Per unit analysis is exceptionally powerful. Using per unit makes understanding your financial statements a more manageable process by allowing you to turn your decision-making into a game.

7:43

S… Speaker 1 (19. Financial optics of the Pros)

How could I increase my revenue of each customer at my restaurant by 40 cents? Using all these measurement and reporting strategies will give you optics and enhance your ability to see the places where you're leaving money on the table and sabotaging your business. Don't fall into the trap of thinking that what you don't see can't kill you. It can, it will, and it hurts.

This transcript was generated by AI (automatic speech recognition). May contain errors — verify against the original audio for critical use. AI policy

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