Key Performance Indicators - The Complete Course | Bill Hanna | Skillshare

Key Performance Indicators - The Complete Course

Bill Hanna, CPA & Controller

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27 Lessons (1h 53m)
    • 1. Introduction

    • 2. Meet Gutbuddy Inc

    • 3. Let's design the KPIs

    • 4. KPI Revenue Growth YoY

    • 5. KPI Same Store Growth

    • 6. KPI Gross Margin

    • 7. KPI Gross Margin per SKU

    • 8. Intro to Balance Sheet KPIs

    • 9. KPI DSO Days Sales Outstanding

    • 10. KPI DPO Days Payables Outstanding

    • 11. Liquidity KPIs

    • 12. Solvency KPIs

    • 13. Financial Leverage KPIs

    • 14. Meet SpaBooker Inc

    • 15. SpaBooker Financial Drivers

    • 16. KPI Growth in Spa Inventory YoY

    • 17. KPI Gross Booking Value

    • 18. KPI Average Spend Per User

    • 19. KPI Take Rate

    • 20. KPI CAC Customer Acquisition Cost

    • 21. SpaBooker ScoreCard

    • 22. Recap Gutbuddy Part A

    • 23. Recap Gutbuddy Part B

    • 24. Recap Gutbuddy Part C

    • 25. Recap SpaBooker Part A

    • 26. Recap SpaBooker Part B

    • 27. Final Thoughts


About This Class

KPIs are simple yet powerful tools to measure the health of any business

In this class, I show you the best practices on setting KPIs and a step-by-step design of a KPI Dashboard. I will teach you how to interpret and speak about commonly used KPIs that are used by the most successful financial financial analysts.

We will go through two different businesses:

1) GutBuddy Yogurt Inc.

A manufacturer of yogurt. We will learn KPIs around sales as well as cost optimization.

2) SpaBooker Inc.

An online marketplace. We will learn KPIs around Take Rate, Customer Acquisition Cost, and many more.

I will cover Days Sales Outstanding (DSO)

This KPI gives a snapshot of the health of customer relations. How fast are you invoicing & collecting from customers? How favorable are your customer payment terms? These are all factors we will talk about in the course.

I will walk you through Days Payables Outstanding (DPO)

This KPI helps a business keep track of it's Working Capital optimization. I will teach you all the factors that could impact this KPI and how to improve it.

I am a CPA and controller of a tech startup in New York City and have a wide range of experiences ranging from public/corporate accounting to financial planning & analysis over the past 12 years.

This class is meant for:

  • Accounting/Finance major students and those who are thinking about majoring in the field.

  • Accountants, financial analysts, controllers and CFOs

  • Accounting and/or Finance major college students.

  • Business owners


1. Introduction: Welcome to this class on learning KP eyes and financial metrics with Bill Hanna. This 1.5 hour class was designed to teach you everything you need to know about the best practices or setting KP eyes and I step by step guide on the design of a K P I dashboard. There are three main reasons why you should take this course. This course covers two different types of businesses a manufacturing firm and the online marketplace, making it the Onley KP I course that covers the vast majority of businesses. Secondly, I use real life examples because that is the best way we learned. And throughout the course, I speak in plain language and steer away from complex business jargon. Sort of. The beginners in us can follow along. My name is Bill Hanna and I'll be your instructor in this course. I am a license C. P. A. In the great state of New York and a controller over a star of software company in New York City. I worked at companies such as PricewaterhouseCoopers, Ajinomoto Kayak and Button, and I bring 15 years of experience, which you can benefit from the supercharger career. Unlike other KP I courses. We will examine riel financial statements off these companies, understand the financial drivers behind a business and walk through the flow process off designing the KP eyes. We will begin by understanding what each company does and how it generates profits. Then we will analyze its financial statements, and then we will figure out which KP eyes would help us keep track off the financial performance off each business. After using this course, you will be able to examine any business model, analyze its objectives and recommend KP eyes to keep track all performance. The main objective of this course is that you apply an analytical approach to real life data and then recommend and evaluate KP eyes. Then use that knowledge toe. Either improve your business or impress your current or potential employer. This is 100% practical course. We will spend very little time speaking about concepts, and the vast majority of the course will focus on implementing the techniques on real life data and interpreting the results. The idea audience for this course, our financial professionals, business owners and finance students who wish to gain new skills. So I look forward to seeing you join our growing community off 2500 finance and business professionals, and I look forward to seeing you inside. 2. Meet Gutbuddy Inc: Now this. Look at the business that we're analyzing today and the business is got body yogurt. And as you can tell, this is a business that manufacturers yogurt. So what do you do? Is the manufacturer picture worth strawberry and banana flavors? Um, and what they do is they sell it through a distribution network to a variety off stores and supermarkets. Now, the objective off the business, um, is obviously to sell as much as possible. So they want to maximize their sales and reduce the costs so that they can increase profitability. So obviously, they have to sell as much as possible in each store chain and improve the cost of goods and have enough cash on hand to see it all through. Now let's look at the income statement of God party yogurt and try to understand how much do you sell? How much is the cost and what kind of profit are they looking at? So we will look at the income statement. We can see that the revenue is $20.2 million. The cost of goods is $15.4 million which leaves them with a gross profit off $4.8 million. They're operating expenses 4.5, and that leaves them with an EPA off 300,000 or $0.3 million. And Ebola is basically earning before interest, tax, depreciation and amortization. EBITDA is basically income from operations, so basically it ignores any non cash items or non operating items such as depreciation, amortization or interest or tax. Obviously, by looking at the income statement, we can tell that the objective of the company is to try to increase that revenue number, um, and reduce that cost of goods sold number and also work on reducing the operating expenses s so that they can maximize their profitability. 3. Let's design the KPIs: now keeping that in mind. Let's look at what drives the business. So let's pull of the income statement again for visual aid if we're trying. Teoh Design KP eyes forgot body yogurt were most likely gonna look at revenue. Now one of the most frequently used revenue, K p I is examining the growth year over year. So this is one of the KP eyes that we will look at today. Um, the other one is same store sales year over year. The reason why same store sales matter is because we are ignoring the effective expansion toe other stores. What we basically, when they look at, is the same store and understanding the effect of promotion and spreading our message on increasing sales in the same store. And so that's why this will be our second revenue, K p i. Now we'll also look at some course KP eyes, and I think the most relevant is going to be gross margin and gross margin by four is the most looked at KP I by investors and bankers and any relevant third parties. The reason is gross margin gives you a glimpse right off the path. Ah, whether the business is able to extract as much profit as possible from its sales before spending anything else on optics. So you got your, um, revenue number here on top. You have Costa goods, and the gross margin is gonna sit right here by saying, divide 4.8 million by the 20.2 million toe arrive at what the gross margin is. I would also look at gross margin, per sq. Um, and skew is refers to ah, stock keeping unit. And what that is is just, um every product that the company sells has a skew number. So any of the flavors that they're making at the gut body yogurt company will have a skew number that identifies the product on. And so we look at the specific gross margin for this. Q um, as a way to tell the profitability on a more detailed level 4. KPI Revenue Growth YoY: Now this look at revenue KP I number one and that's revenue growth year over year. Now what? We're measuring the revenue growth year over year. Let's say we are in 2020 and we are in the month of May. So in May 2020. If we want to measure revenue growth year over year, then what we'll do is we'll look at the year to date sales as of May 2020 in this case will assume that our sales you to date on May 2020 is $7 million. What we need to do next is look at 2019 and for us to be able to compare apples, apples, we need tohave also the month of May 2019 and the U to date sales on the end of May 2019 which were $6 million in this case. So now for us to get the revenue growth year over year, um, all we have to do is take then the seven million from 2020 minus the six million from 2019 divided by, um, then the denominator or the base is what it waas last year. So then this is simple seven minus six is one million, divided by six million. That gives us 17% revenue growth year over year. Let's recap this real quick growth revenue year over year it's going to be looking at May in one year doesn't have to be made. Could be May could be June or July and looking at the number of the amount of sales you to date as off the end of May, and you have to compare it to the same period last year. Um, and that's in this case is $6 million. And then just take the seven minus six, um, divided by the six, which is the base year last year, and that will give you the 17% year over year growth. Now, the nice thing about having this measured is that now that we know that the year over year growth is 17% in May, if we measuring this every month, then we're able to then chart this in a graph and say visually, here's how the business is doing. In January of this year, our year over your gross was 15% and then grew to 20% and it was growing nicely into the year 30 and 40% by April on then, we're taking a slight pullback here may down to 17%. So this will give a nice visual aid to management so that they can immediately see that there is a slight sign of trouble here. Azzawi navigate the year now The inside that we gain from such K p I is that if the company is targeting an 80% growth year over year, let's say that the company's ambition is to hit a year over year growth off 80%. Um, if we are seeing a 17% year over year growth as of May, this may be a cause for alarm and will force us to look deeper into the business and find out the areas of trouble. 5. KPI Same Store Growth: Now let's look at the KP Iot of revenue growth year over year. But we'll look at it from a same store standpoint. The reason why we go through a same store analysis here is that we want to strip out the effect of expansion so we don't care if we went toe a bunch of new stores this year. What we wanna measure is in Whole Foods in this example. Um, are we selling more or less year over year? Um, and the reason why it matters because it gives you an idea. Are you then spreading your message to the consumers in that same store? Are you promoting enough? Are you getting people to buy your product in that same store? And so, um, when we want to measure it, we will look at it in the same way that we did for ah, sales growth year over year will say Okay, just in whole foods in 2020. But in the months of may, um, you to date sales where $2 million well compared to the same period in 2019. Um, and we have to look at it in the same exact period of time So then we're looking at it and it's three million. Um, and this is no surprise here. It looks like we are taking a pullback here in Whole Foods. Last year we sold $3 million as of May 31st. This year, we're selling $2 million on Leah's of May. Ah, City First, Um, this is a sign of trouble. And if we do the mass here, we'll find that revenue growth year over year in the same store waas. As you can imagine. Negative. So we're looking at a negative 33%. Um, then pull back in the growth year over year now. Obviously, the inside that we get from such K p I is that if we have a decline in the same store year over year, it triggers a further study, um, into what's happening in the business. And it will force us to ask questions such as, Are we creating enough awareness around a product in the same store? Um, if we're seeing a decline in sales, this may be a sign that we're not doing enough and creating the right awareness and spreading the message. The second thing we need to ask ourselves in this case, is that are we doing enough promotions and discounts? Now when you're walking through the aisles of a supermarket today, what you'll find is that there is a bunch of discounts and coupons that you can find in various flyers and publications. You can give this coupons and go get a discount of product. Ah, this is a trick that these manufacturers, dude, in order to get you to buy the product once you taste it, you like it, you come back and buy more of it. And so, um, we need to ask ourselves that question whether we're doing enough promoting the product. Um, then the third thing we need to ask ourself is whether we're doing enough sampling in the store S o. If you go to a Costco or BJ's. Ah, here in the United States, you'll find that there is, um, and employees standing, and he's usually 1/3 party employees hired by marketing firm. And what you're doing is they're sampling the product. They're giving away a taste off what the product is so that you can taste it. You like it, you go on by it. And so, um, we may not be doing enough in that regard as well. And so as you can see, measuring the revenue growth year over year in the same store is crucial in understanding what are the trouble areas in the business? 6. KPI Gross Margin: Now let's examine the coast KP eyes and the 1st 1 we want to cover is gross margin now, gross margin, as I've said before, is the gold standard and KP eyes when it comes to manufacture goods. Ah, the reason why uh, investors and bankers and third parties really focused on gross margin is that it gives them a glimpse right off the bat. Um, whether the business is able to extract profit from the sale. So if you sell one jar of yogurt for a dollar, how much profit are you able to extract from that? Are you getting 25 cents? Profit may be better. 30 cents are getting 50 cents. The more you can increase the gross margin, the more profitable in general you'll be. And so what we need to look at here is, um, again, we look at an income statement view and look at also may 2020 year to date and examine revenue $7 million. Um, or Khost ago sold is $5.3 million leading to a gross profit of 1.7, and that tells us that gross margin is 24% on, obviously 24% is coming from dividing 1.7 by seven million, so defy dividing the gross profit by the revenue number, and that gives us gross margin of 24%. This obviously speaks to the efficiency of the manufacturing process. And so the more you are able to optimize your coast ago sold, the more your gross margin will go up. Now let's look at the inside that we get from gross margin. If we expect gross margin of 28% and we already have 24% and we're may, we have to consider a few things. Um, you know, the first thing we need to look at is that are we wasting material? You know, big part of Costa goods on a big place where businesses fail is that they have wasted material and, you know, waste can come in the form of wasted raw material, wasted packaging and, in many cases, have seen in the past where companies will come up with a new marketing campaign that has new packaging. And after we printed and it cost so much money, we realized that the message changed. Are we going with different packaging? And so we have a bunch of back in June, material that's gonna be thrown away, that sometimes could be into the hundreds of thousands of dollars wasted and that would immediately immediately go toward Costa goods. Um, leading Teoh worse and gross margin. So we need to look at the material whether we're wasting Ah, the second thing we need to consider is Are we spending too much on freight in, you know, obviously the course to bring in a row material and back edging discourse to bring it in for manufacturing is a cost of goods, and so that counts toward the cost off the inventory itself. And obviously the inventory becomes, then your asset. Once you sell it, it becomes costa goods. And so the coast to bring in the raw material and packaging is, um is important here. That certain we need to consider is whether we're facing rising costs and the costs here could be, ah, the overhead, which is the utilities and the rent of the plant, or could be the labor costs. And so, like if you're hourly costs of the employees going higher, obviously this will increase your cost of goods. And so these are the things we need to consider when we're looking at the gross margin that's declining compared to our expectations 7. KPI Gross Margin per SKU: Let's go over the course. KP I off looking at gross margin per sq eso. Previously, we've seen gross margin as a whole for entire line of a product, and now we'll look at it for once. Que. And the reason you want to do this in a secure level is because you want to be able to determine the the holes in your gross margin. Eso if you're gross margin in general isn't performing when you look at it on a skew level and skew again is sense for stock keeping. Unit sq is just like the way that we look at products. Every product has a skew number, and that's the way we identify the product. And so when we look at the gross margin purse Q. Then we're able to tell Whiskey wasn't performing, and then we can then diagnosed that by diving deeper into it and understanding or costs. And so when we look at Banana yogurt, Onda look up than a bigger because that's my favorite slaver. I'm gonna look at the income statement and see that revenue as for the month of May, is $2.5 million. The cost of goods sold is two million gross profit is half a 1,000,000. Um, and we're looking at gross margin off 20%. And you can immediately see here that since this is a 20% gross margin and the overall for the company is 24% this is one of the products that is probably pulling back the entire gross margin for the company because it's has a lower gross margin percentage. And so we immediately have to look into the course to produce the skew and see whether it's meeting our expectations. So obviously, the insight when you're looking at banana flavor cost when it's too high, you gotta examine similar things to gross margin race you that I examine. Are we wasting material? Are we then re buying raw materials we're not using? Um, you gotta look at, um, the freight end. Are we spending too much money bringing in the raw material and the packaging to the factory you've got also look at rising costs, you know, maybe labour utilities. Whatever the case says Now, when we look at banana yogurt, we need to understand what goes into producing, um, one jar of yogurt. So the coast ago sold here were consists off raw materials in this case, but Anna and milk. The second thing that goes into making the banana yogurt is the labor cost. With this little guy here that makes the over to the factory. And I'm not sure why he's wearing a safety hat, but he has one. Um, and the third thing that goes into making the yogurt is gonna be the overhead, and that's the actual course off the plant itself. That's what runs the plant. So Ah, this obviously includes the rent off the plant and the utilities and any other course associated with running the plant. Um, the fourth course that goes into making the over it is gonna be the freight in. Um, obviously, you gotta bring in your raw materials in order for you to work on it. And so all the packaging, all the milk or the bananas, um, older comes in, um, with a cost. And so the other thing to remember to is that bananas usually manufacturers that make any product that includes a fruit or a vegetable, they don't really go out and buy ah, bunch of bananas from suppliers. Um, you don't buy fresh bananas. What you do is the by, like a frozen. But Anna puree, Um and so they bring in, like, thousands of pounds off frozen banana pure raise. Store him in a frozen section of the factory and some sort of freezer and keep them until they need them. Usually have about two or three years off expected life. Um, you don't last forever. So in many cases, this raw material could be wasted. If you don't estimate how much exactly you need off this raw material, you could end up wasting some of it. And so these are the components that go into making a jar off banana yogurt. 8. Intro to Balance Sheet KPIs : Now let's shift gears and going to the balance sheet KP eyes, and the reason why we go into that is because we want to be able to preserve our cash. And so the way to do that is to reduce the collection cycle. Ah, and at the same time increase the cash out cycle. So it's real simple. You need to be able to bring in cash sooner from your customers and spend it out slower to your suppliers. And so this is how you enhance your cash position. And so in looking at the balance sheet KP eyes, the first KP I will cover is days sales outstanding or the eso and what days sales outstanding is is just a number of days that it takes you a za company to convert your sales into cash. So it's the duration of time it takes from creating an invoice. You have a sale until you actually have the cash in hand. Um, and so we look at the Esso or their sales outstanding. Would also look at D p o d P. O. Or days payable. Outstanding is almost the flipside of the coin. And so if the eso is saying how long it takes us from a sale to cash. And so what they is payable outstanding is gonna be is the amount of time it takes from incurring a cost or being invoiced by the supplier until the point in time that we actually lay out the cash. And so naturally, as you may imagine, you would want to increase the number of days toe pay the supplier, and you want to reduce the amount of time to collect from customers. And so this is the dynamic that we will be looking at. Um, we want to widen the gap. Um, between the de eso and GPO. An example is that if your dear so is 45 days, you would wanna have, um, something like 70 days to pay your suppliers So you may have a cushion there between the collection and the payment. 9. KPI DSO Days Sales Outstanding: Now let's go into Ah, the sore days. Sales outstanding. Um, you know, definition, obviously as we said, is the number of days it takes to convert sales to cash. Let's go on actual example of de eso and in this case will say that the formula is accounts receivable divided by credit sales. In this case, we only look at credit sales were not really concerned with cash sales were measuring the number of days it takes to bring in cash from credit sales. Um and so we are dividing Onley by credit sales in this case on and then multiply that by the number of days in the period. And so for the period off May 2020 if our accounts receivable is $2 million our credit sales is $1 million Um, you know, obviously 31 days in may, Um, when you want the plot, when you divide two divided by one equals two multiplied by city, one that gives you 62 days. And so, um, we're saying here that it takes 62 days to collect or to bring in the cash from the sales that we made. And so what? Inside that we get from that. Um, you know, when we look at the industry average when it comes to manufacturing, you know, the average is about 45 days. And so if we're saying that it takes us, um, an average of 62 days to convert invoices into cash, this is a sign of trouble. Um, and so when we see that we want to look at do we have slow paying customers? And so one of the biggest problems with collecting cash is if you have slow paying customers. Typically the your biggest customers, which is the biggest supermarket chains, are gonna be slower payer customers because off the size and because they command that sort of, um, um, tolerance in the market, they're able to pay you a lot slower so they know you won't complain. You do. You know that you want the business, and they'll keep paying your slower. And so you need to push back and try to get a little faster if you want to improve your dear. So at the same time, you want to be looking at the payment terms you're creating. So when you're negotiating with a new customer now, you have a chance at negotiating from scratch, You'll you can actually then say you want to get paid in 30 days. Obviously, they'll bush back and they'll say, No. 60. And so you try to maybe meet in the middle, maybe 41st and see if you can get 40 days, if you can than 45 but try to stay away from anything over 45. Um, now, the surfing to look at is whether we're making it easy for customers to pay. There are many cases where I look at invoices and I don't see payment instructions, and so you want to be able to make it super easy for customers to pay you fast. And so the first thing to look at it is, Do you have your contact information listed on every invoice? Do you have your banking information? Do you have the address? Correct. Do you have, um, every possible way for this customer to pay you? If you accept any other means of payment listed on there, make sure that the customer can pay you fast 10. KPI DPO Days Payables Outstanding: Okay, let's move on with our balance sheet, KP eyes. And now let's look at days payables outstanding. And as we said before these people, outstanding is the measure of number of days. It takes you from incurring costs they cost the good. So you bought raw materials packaging. How long that it takes, Teoh pay the supplier. And so you want that number to be as long as possible. You want to hold on to your cash for as long as possible. And so this is the number of days it takes to pay vendors. Now, when we look at the DP or Days people outstanding, the formula for that is going to be taken accounts payable and dividing it by your close to goods. And so you take that and you multiplied by the number of days in the period. Um, this go through an example. So if we're saying that forgot body form A off 2020 our accounts payable is $3 million our coastal sold is 1.2 million. Um, multiply by the number of days in May, 31 days will get, um, 78 days. So this is saying that it takes a 78 days to pay the supplier. It's not about number. Ah, the industry averages about 90 days. So you want to try to get a little bit closer to 90 by negotiating with suppliers, Toe, have your payment terms get closer to 90. So obviously, the insight we get from that is that if the industry average is 90 days to pay suppliers and it's taking a 78 days, it means that we can push a little bit more and get to 90 days. Um, and you know the way to do that is to negotiate good payment terms with the vendors. Are we doing enough of that? So that's the question you gotta ask yourself when you see this number s so it's important for you to measure every single months and see where you're at. Um, are you improving that number you getting from 78 you're getting closer to 85 or 90? And the second thing to look at is whether we're paying at the end of the term of the payment. And so one of the things I've seen a companies is that in many cases, the right hand doesn't know what the left hand is doing. So you're coming up with all these strategies to try and improve your days, people Outstanding. But you're not communicating to your accounts payable department. You want to be able to tell them, instruct them to pay toward the end of the window for payments. So if the supplier is allowing you 75 days to pay them, you gotta make sure to instruct your accounts payable staff to pay at the very end of the window, Not in the middle, not at 75% of it, but, like at the end, toward just like the last day. 11. Liquidity KPIs: Hey guys, today I'm going to teach you three financial ratios or metrics that are used by financial analysts and investors to look at a balance sheet and assess whether the company has enough liquid assets to meet its short-term liabilities. And so when you look at our basic structure of a balance sheet and we'll walk through it here in a minute. You can either look at it and say that the company has a $100 thousand in cash, which is a very simple number, and doesn't tell you much of what's going on in terms of current liabilities. Or you can use these financial ratios such as quick ratio, current ratio, and they Sales Outstanding to give a more complete picture of the company's position in terms of liquid assets. So the goal of this liquidity ratios is to figure out whether the company has on its balance sheet enough liquid assets here on the current assets side to meet its short-term liabilities or current liabilities. And first, before we jump into these financial ratios, let's walk through the basic structure of the balance sheet. And obviously it's called the balance sheet because the asset side needs to balance or equal the liabilities and share shareholders equity side. So as you can see here, that total assets in this case is 450 thousand and the total liabilities and shareholders equity is also for 450 thousand. And so the basic accounting equation, and let's put it up here so that we remember it is that assets equal liabilities plus equity. And if you remember from the days of learning mass, if you take, then the liabilities here on the side. So assets minus liabilities equals equity. And the concept here is very similar to when you own a house. So if you own a house and the fair value of the house is a certain dollar amount and you have a loan on that house, that's the liability here. So when you subtract the liability out from the value of the home, then what's left over is the equity or the your equity in that home. And that's the same concept here with accompany. When you have liabilities, if you pay off all of your liabilities using your assets, what's going to be lift over is your shareholders equity. And that's the basic concept of the balancing of the balance sheet. And if we want to walk through the balance sheets really quickly on the SSI current assets. These are the assets that are, are readily convertible into cash within 12 months. So that's why it's called current. Current assets will include cash and sometimes you'll see it either cash or cash and cash equivalents. Cash equivalence will be those other types of cash accounts that can be converted into cash in the short term, such as money market account or CDs that are short-term CDs that can be converted to cash within 12 months. And after cached you'll see accounts receivable. Accounts receivable is also considered a current asset because it it's expected to be turned into cash within, ideally in less than 90 days. And then inventory is also considered current because inventory is also expected to be turned into cash within 12 months or less. And here we have total current assets of a $150 thousand. Next, after that we have other assets. And in this example we have property, plant and equipment. And these are more investment from the company and its future. And so this is things like the office or the furniture or the computer that the company is using. And usually it's presented on a net basis from accumulated depreciation. So in this case here, we have property, plant, and equipment for $300 thousand. When you add up one hundred fifty and three hundred, you have 450 total assets. Now we jump over to the liability side. We have current liabilities. And current liabilities would be those that are expected to be paid within 12 months as well. So accounts payable, $50 thousand, usually Accounts Payable when you have invoices from a vendor, it's expected to be paid less than 90 days, usually sometimes 30 days, 60 days, or 90 days. So those are current liabilities, accrued expenses. These are the expenses that you haven't received an invoice for from the vendor yet or haven't paid yet. But you have used the service and expect to receive an invoice in the future. So you accrue for it on a balance sheet and you book the the P&L for that amount was $20 thousand accrued expenses, deferred revenue. You may be wondering why is revenue setting on the liability side, but deferred revenue as the name implies. The first is that the revenue that you expect to realize as revenue in the future. And so the reason why it's a liability. So you'll receive an example of that is if you receive a payment from a customer for a future service or product, but you give you a prepayment, sort of prepayment is recorded as a liability when you receive the cash debit to the cash account, increase it and credit the liability which is deferred revenue. And that's expected to be a current liability as well. And then the next section over is long term debt to a 100 thousand and usually long-term debt. The most common way of having the long-term debt is a loan from the bank, and usually that will have a maturity date. And so usually this is more than one year. That's why it's long-term versus this is current, so longterm to a 100 K. And then when you subtract then 350, which is a liability from the assets, you arrive at the shareholder's equity of a 100 thousand. And so the balancing here is a 350 plus a 100 thousand equity is 450, which balances the asset side here as well. Now keeping all that in mind and the balance sheet structure, we can jump into the three financial ratios that we are going to use to measure the company's liquidity or its ability to meet, uses liquid assets to meet its current obligations. And the first one is the quick ratio and the quick ratio. The formula for that is current asset minus inventory divided by current liabilities. So let's take a look at that. So we're saying this is current assets minus inventory divided by current liabilities. So current assets is a 150 thousand minus inventory of 30 thousand, which would be a $120 thousand here. And the reason why we're subtracting out inventory is because this is called quick as so as the name implies, quick ratio is a ratio that is, implies that a cache or an acid is quickly convertible into cash and so that you can meet your current liabilities obligation. And so a 120 thousand, which is a current asset minus inventory, divided by a 150 thousand in current liabilities is 0.8, which is less than one. And so the reason why we subtract out the inventory here is because inventory is not quick. So like you're not expected to be able to just flip inventory into cash. You are supposed to receive sales order or purchase orders from customers before you can go ahead and convert your inventory into cash. And so in this case here, the way to interpret or to explain to management or to investors what this 0.8 means is that this number is ideally should be a much higher number than that, the higher that number is. So, you know, ideally there'll be like three or four. That implies that the company has excess in its current assets or quick assets to meet its current obligations. And so that 0.8 here in this example is not a very good quick ratio. Ideally, that number should be higher and this is an indication of just accompany not doing so well. And the second ratio that we're using here as the current ratio, the current ratio is very similar to the quick ratio, except that it takes into account inventory. So remember here how we subtracted out inventory out to arrive at this quick ratio. Here we're going to keep it in. And so we're just taking current assets divided by current liabilities. In this case, current assets is a 150 thousand right here and divided by current liabilities, 150 thousand, and that's a ratio of one. So this indicates here that the company has current assets to meet its current liabilities. Again, you want that number to be a lot higher than one. You want it to be 234. And that will indicate that the company has excess current assets to meet its current obligations here as well. And a third metric or financial ratio that we're using is days sales outstanding or DSO. And day sales outstanding refers to the ability or the how long the company takes to convert its sales into cash. So you want that number, and this is expressed in days. So you want this number to be as low as possible, ideally less than 45 days. And the way to calculate that number is to take accounts receivable balance, AR balance, which is here, $20 thousand, divide that by credit sales and credit sales. Obviously, we're only concerned with credit sales because cash sales are collected on the spot. And so credit sales is when you issue an invoice to a customer and collect in the future. And so credit sales here and $10 thousand multiplied by the number of days in the period. So $20 thousand they are divided by $10 thousand in credit sales times 30 days in the habits to be a month, 30 days in the period. And that will equal 60 days. Which means that this company here takes 60 days to convert its sales into cash. And you want that number to be closer to maybe 30 days or 45 days. 45 days is an industry average and you want to be within that range. Any number above 45 indicates that you're either slow to collect your cache so you have a collection problem, or maybe you are not invoicing your customers fast enough. You have a problem with that receiving payment. Maybe you're not making it clear to customers would have to pay you. Or it could be that the contracts that you're negotiating with your customers don't have favorable terms. So usually you should try to make the contract with the customer. You should make the payment term 30 days or at the most 45 days and tried to stay clear from superior Fromm 60 days or 90 days. These are too long. I want to keep it under 60 days and around maybe 45 days. 12. Solvency KPIs: Hey guys, welcome to another video. Today we're discussing solvency ratios. And these are balance sheet metrics that measure the company's ability to meet its long-term obligations. If you've seen my previous video on liquidity ratios, the difference between liquidity and solvency is a liquidity generally refers to short-term, so thats the ability of the company to meet its short term obligations versus solvency here today, discussing these three metrics of KPIs that measured the company's ability to meet its long-term obligations. And the reason why this is important for you to know is that if you prepare him for a job interview as a financial analyst or any kinda finance position. Or if you're an investor in the stock market, it's good to know these ratios so that you are measuring the companies that you're investing in, as well as if you're reading an article, you're able to know what you're reading. So this is the topic of this video today. So the way I want to structure this video is first give a quick overview of the balance sheet like we did in the previous video. So we'll walk through the balance sheets really quickly and get a quick understanding of the structure of it. And then use that to jump into the three solvency ratios that we are covering today, which is debt to equity ratio, interest coverage ratio, and solvency ratio. And for each of these financial metrics will go through the formula, that calculation, or where we got the numbers from the financial statements and then we interpret the results. And this probably is the most important part is like how to interpret the result. For example, if you get a debt-to-equity ratio of 3.5, what does that mean? Is that good or bad? Is it better to be higher or lower? This kind of thing? I think this is the most important part. So first let's give a quick overview of the balance sheet. So looking at the balance sheet and obviously as the name implies, a balanced, so the balance here is that we're balancing between the assets. So on one side we have assets, and then on the other side we have liabilities and shareholders equity. And idea is that total assets, which is in this case 450 thousand, will always equal the other side, which is liabilities plus shareholders equity, which is also 450 thousand. And that's basically the main Accounting Equation, which is, let's write it out here. Assets equals liabilities plus equity. And this is what we just said here, assets equals liabilities plus shareholders equity. Basically, if you flip this formula and bring the equity of this side, is basic math. You say equity equals assets minus liabilities, which is saying basically that your equity in the company is taken the assets and paying off all the liabilities, which is the same concept if you own a home. So if you own a home, basically, what's your equity in the home is taken the value of the home and subtracting out their loan value or the what you owe in the home, that's your equity. Same thing here in the company and accompany also your equity equals assets minus liabilities. So that's the main accounting equation, and we can now use that to jump into the three financial ratios. The first solvency ratio we're looking at today is debt to equity ratio, which measures the reliance of the company on that. Raise capital versus equity, because the two ways for the company to raise capital will be one, either debt or to equity or selling stock. So basically, the higher this number or issue here, which is in this case 3.5, it indicates that the company relies heavily on raising capital through that. So basically the formula for that is total liabilities divided by equity. Total liabilities here from the balance sheet is 350 thousand divided by equity, which is right here, shareholder's equity, a 100 thousand. So that gives us 3.5. And basically the higher that number, as we said, it indicates, the company relies more on debt then equity to raise capital. It's not all that bad. Usually if it's the higher the number indicates that the higher the debt, but sometimes you want to take advantage of lower interest rate. So it doesn't necessarily mean bad. You have to take it with a context of what's going on within the company. If they've taken advantage of low interest rates, for example. So they rely more on debt than equity. It all depends on the cost of capital. Is it's cheaper to pay interest and raise debt, or is it cheaper to issue stock and get the capital that way? So that's the debt-to-equity ratio in this case is 3.5. The next solvency ratio we're looking at is interest coverage ratio, which measures how many times the company can cover its interest expense from its earnings. So the formula here is EBIT or earning before interest and tax. That's the acronym EBIT divided by interests. And basically, when we look at it in this case here, EBIT for this company is 460 thousand divided by the interest expense in the same period, which is 50 thousand, which gives us a ratio of 9.2, which indicates that the company has nine times the amount of interest in earnings. So that's usually the higher the better you want that number to be high. So that indicates that the company can cover as interest expense nine times over, which means that the have interests, they have excess funds to cover beyond the interest. So basically here it's 9.2 and that's the, that's the interest coverage ratio. The third and final ratio over covering today for solvency is referred to as the solvency ratio. That basically measures the company's ability to meet its long-term obligation using its free cashflow. And you'll see that in a formula, because the formula for a goes net income plus depreciation, which basically refers to cashflow. If you take net income and add back depreciation, since depreciation is a noncash expenses, no cash going out when you have a depreciation expense. So you add that back, which basically is free cashflow, divided by total liabilities, which in this case, net income plus depreciation is 420 thousand divided by total liabilities from the balance sheet here, 350 thousand, you get a multiple of 1.2. And obviously you want that number to be as high as possible. The higher it is, it indicates that the company is more solvent. It has free cashflow to cover the long-term obligations multiple times. In this case, it's 1.2 is not all that bad. And obviously if it goes below one, it means that the company doesn't have enough free cash flow to cover as long term obligations. And thus the search ratio or the solvency ratio. 13. Financial Leverage KPIs: Hey guys, in today's video we're discussing for balance sheet KPI's that are used by financial analysts and investors to measure a company's financial leverage. But let's take a step back and define KPIs and define financial leverage. So KPIs or key performance indicators. And these are ratios that we use as financial analysts to talk about the company's financials in the relative forums. So rather than giving a dollar amount to someone, we give them a KPI or a ratio. So for example, if you're asked by an investor or by management to tell them describe the company's debt position. So you may give them the dollar amount of the debt. So you may say, for example, the company has $2 million in debt. Or you can give them a KPI or key performance indicator, which will be a ratio that will give them more information. For example, if the total debt that the company has is $2 million. So rather than saying that the company has $2 million in debt, you can give them a ratio like debt to equity ratio, which in this case we'll take $2 billion of debt and divide it by the amount of equity. Say the equity is a million dollars and given the ratio which will be 2 million divided by 1 million will be two. So that will be then an indication that the company has twice as much capital raised from death than from stock issued. And so KPI just has more information than just giving a dollar amount by itself. And in today's video we're talking about for KPI's that would measure a company's financial leverage. So let's first define financial leverage, which is basically the strategy of the company to raise capital. So there are three main ways for a company to raise capital. One is through issuing debt, most often in the form of bonds or issuing new stock to new investor or to existing investors. Or the third way would be to raise capital through its own operations from the free cash flow that the company generates from its own operations. And so those four KPIs that we will discuss today will give and you invest their own idea on the mix of strategy of the company is using whether it's from debt or issuing stock or its own operation. So without further ado, let's jump into today's video. Okay, so let's begin by looking at the balance sheet of the example company that we are looking at today. And this company is called byte NOW Inc.. If we look at the balance sheet just at a basic level, the basic structure of the balance sheet is that total assets will equal total liabilities plus owner's equity. So in this case, the company has 5.5 million in total assets and has 5.5 million in total liabilities and equity. And all of the KPIs that we will be looking at today are basically trying to measure one thing and one thing only. Which is if you look here at the total assets line, $5.5 million in assets, all of these KPIs, what they're doing is trying to understand the leverage of the company, how the company is financing this $5.5 million and total assets? Is it through debt? So basically, if you can look down here at the liabilities line, the company has $3.9 billion in liabilities or through equity. So the company has $1.6 million in equity. Cdc KPIs would be pretty much look in and trying to measure and give a quick to understand ratio or where the company stands in terms of the mix of strategy, in terms of raising capital. So we'll begin by the first ratio here, or the KPI that we're looking at today, which is debt to equity ratio and debt to equity ratio, as the name implies, is the relative proportion of shareholders equity and debt used to finance the company's assets. So basically it's looking at the amount of debt the company has and comparing it to the amount of equity and giving us a ratio that's easy to understand and digest. So basically, if we follow the formula for this KPI, It will be liabilities, total liabilities divided by total equity. So in this example here, total liability is $3.9 million. If you divide that by total equity, 1.6 million, you get a ratio of 2.4, which is basically a ratio that tells us that the company uses 2.4 times. The company raises capital 2.4 times as much from death as it does from equity. So this is not neither good or bad. Usually for manufacturing companies, that ratio hovers around two. And this ratio here being 2.4, isn't necessarily bad. Because in some cases the company wanted to take advantage of low interest rates, for example. So we'll rely more on debt to raise capital. Now if we move on, move on to the next KPI, which is debt to capital ratio. And did the capital ratio is a little bit similar to debt-to-equity ratio, except it tries to measure the amount of debt the company has relative to the total capital deployed. So let's understand the more when you look at the formula, you'll get it more. So if we look at the formula for debt to capital ratio, basically the formula goes long-term debt divided by long-term debt plus equity, which is basically what we are trying to compare by looking at the formula, is the amount of debt compared to the total capital deployed, deployed and accompany. So the long-term debt in this case is if you look in the balance sheet, is $2 million, and if you take that and divide it by the total capital deployed, which will be the same $2 million from long-term debt plus equity, which will tell us then $2 million divided by 3.6 million or a ratio of 0.6. You can read it as 0.6 or 60%, which is saying here that 60% of total capital raise is coming from debt. So basically this gives you an idea of how much of the total capital deployed and accompany that comes from that is 60%. And this seems to be fairly reasonable. Again, it's neither here in this case, good or bad. You have to take it in context of the company is trying to take advantage of some favorable interest rates. It might raise more capital. Or if the interest rates are high, it might be cheaper to issue stock. So this here is 60% for the capital ratio. Ok, so far we've covered to KPIs. The first one is debt to equity ratio, and the second is that to capital ratio. And now the third KPI is going to be debt to assets ratio, which basically is going to give you an indication of how much of the company's assets are financed through debt. So the formula for it would go, if you look at the balance sheet here, the formula is total debt divided by total assets. That's the formula for the debt to asset ratio. So basically we're taking the $2 million from total debt, which is the long-term debt, and dividing it by $5.5 million in total assets and get a ratio of 0.4 or 40%. You can read it either 0.4 or 40%, which is basically saying that 40% of the company's assets are financed through debt. So now that we've covered three of the KPIs and we want to cover today, we're onto the last KPI, which is the financial leverage ratio, which is very similar to the last KPI that we covered, which was the debt to asset ratio. But this one looks at it a little bit differently in terms of multiple. So let's look at the formula and we understand it a little bit more. So if you look at the financial leverage ratio, the formula goes total assets divided by total equity, which basically, if you look at the balance sheet here, the amount of total assets as 5.5 million and the amount of total equity is 1.6 million. And you can tell what this KPI is trying to do by dividing assets divided by equity, is trying to say how much of the assets are supported by equity and accompany. So basically here the multiple is, the result of the ratio is 3.4. And when you divide it, so 3.4, you want that KPI to be as close as possible to one. Because basically when it's close to one, it's saying that a lot of the assets of the company is supported by equity or ownership in the company. But again, if the company is leveraging more that because the interest rate is low and the market. So basically that, that could be a high number. So the answer is that it depends. You know, ideally you'll be close to one as much as possible. But in this case, we don't know if the company is trying to take advantage of low interest rates. And so it's relying more on debt than equity to finance its assets. 14. Meet SpaBooker Inc : Now let's look at a different business model, and the business we're looking at today is an online marketplace. The business is called spa Booker, and it's in the business off connecting consumers with, um, spas in the neighborhoods, um, via the mobile lab that they have, and so, basically a marketplace business as one where there is a supply off some kind on one end, Um, and on the other end is a consumer, and you're connecting the two and making a commission in the process. The most famous example that I can mention is eBay. EBay is a marketplace. If you want to sell an item, you go on eBay on you are, then the supply E Bay sits in the middle, and on the other end there's a consumer who is buying your goods than eBay makes a commission from that sale on other listing fees and what not, but basically the model is that spot. Booker sits in the middle between, um, you know, many spas that they've made relationships with, and on the other end, the consumers that are using the mobile app to place, um, their bookings and, um, then spa. Booker is making a commission on every reservation made on the platform. Now let's look at the objectives off the business, Obviously, every business eyes looking to grow. More specifically, spa Booker is looking to achieve certain objectives. You know, the 1st 1 is that they want to increase the supply or the number of spas available in the platform. You know, obviously, the more spas they can offer. That means more options for the consumers, Um, and so they will increase the revenue by increasing the supply side of the business. Um, the second objective they have is to increase the number off and users, obviously, if you increase your spas inventory. But you're not getting the end users to use the service than you want, have a business, and so you need to increase both sides of the marketplace, your inventory or your supply and your users or your demand. So then you can succeed, Um, and the sort of directive they have is to increase their take rate. And so once they've increased the supply side of the business, and then the increased the demand side of the business, the third component then becomes the take rate on the take rate is just the amount of commission that they can take from every booking placed on the platform. So say consumer places booking for $100 for a spa treatment. If you are in a contract with the spa to get 30% commission, that becomes your take rate on, so obviously, the more that goes up, the more revenue you'll have. 15. SpaBooker Financial Drivers: Now, let's look at the income statement off spa Booker. Um, and we'll see that for the year. The revenues are $10 million. Ah, there. Coast of sales is $7 million coast of sales in a marketplace type business is going to be made up primarily off, um, in this example here the amount that they have to pay the spa. So if they get a gross booking off $100 then the revenue is $100. And when you they pay the spa, the $70 then that's $70 becomes the coast of sale. And so look at the income statement. We see that the cost of sales as $7 million which made up off the amount they have to pay to the spa. Um, plus then the salaries off all the account traps. Um, then we arrive at a gross profit of $3 million. Um, operating expenses are four million, um, and athletes to anne, but ah ah, negative one million. Um, Eva is earnings before interest, tax, depreciation and amortization. Ebola is a way to look at the earnings of the business without the effect off non operating items such as depreciation, amortization, tax or interests. Um, and so in this business here, we can see that the operating expenses are, um, hi until it's $4 million. And that's why the business is still losing money. Um, and so a lot of the expenses that go into optics are gonna be related to marketing and advertising. As a young business, you rely on marketing and advertising to get the word out on grow your business. And so that's where ah Spot Booker is at. And so obviously, their main objective is to increase revenue, reduced cost of sales and also reduce their operating expenses so that they can arrive at a higher profitability and hopefully reach the break even point. Ah, the break even point is, obviously when you reach IBRA or earnings or net profit off zero. So when you are before profits as a business, your aspiration is to reach break even points. Now let's look at the factors that we must consider when designing KP eyes for Spy Booker. Um, you know, first, we need to look at growth and their spot inventory. We need to make sure that our KP eyes are measuring gross booking value gross booking valuer first to the total dollar amount that is placed on the platform with each order. We also need to consider take rate. Take rate, as we had mentioned, refers to the commission rate on each booking. Um, and we also need to consider the close to acquire customers or CAC. The reason why customer acquisition cost is very important to a young businesses that if we're spending way too much money acquiring customers, then we are sacrificing profitability here. 16. KPI Growth in Spa Inventory YoY: now taking all these factors into consideration. KP I number one is going to be one around grows in spot inventory year over year. And so in this KP I our objective is to measure the growth in the inventory off. Spas are that are available on the platform year over year. So we'll look at them last year and we look at the growth this year and see where we're at in terms of growth. Um, so we'll find out in 2020. Um, and we're measuring as off you today, May 2020. Um, we're looking at the new spas here today that with editor a platform, and they were 30. Um, now we need to look at the same exact period last year. Will find that in May 31st year to date in 2019 are new spots at it'll pass form or 20. Um and so you know, as you can see quickly here that we've added 30 spas year to date, in 2020 lost, you have added only 20 spas and so looks like we're doing better this year. And so the KP I is going to be growth inspired Matori year over year or 30 minus 20 divided by the base year, Um, and the busier as last year, which is 20. And so that gives us a new increase off 50% year over year. And now that you ah, you've measured the KP I, um if you measure consistently month after months, you're able then to plot these numbers on a chart to see on a monthly basis where you're at , um and so you can see that we started the years Ah, little bit slow at 15% growth year over year. Um, then we went to 20% of February and then picked up a lot in bars and then pull back a little by April May. Um, the reason why this is important is that if your goal is to reach about 80 or 90% growth year over year and you are seeing in May 50% gross, then, um, you need to pick up the pace. Um, and you need to see what needs to be fixed in the business for you two, um, reach higher growth year over year. Now, let's look at the inside that we get from measure in this KP I now in order for us to increase our spot sign ups that are a few things that we need to do. Um, you know, the first thing that spot Booker needs to look at is enhancing the product offering from a design and features standpoint. In order for you to convince more spas to join the platform, you'll need to show them that your product is constantly evolving both in terms of features . Ah, and design as well. Um, the second thing you need to consider is you need to make it easy for spas to sign up. Um, and the best way that you could do that is through self service. You know, the best way to get more spot adoption to your platform is to make it easy for them to sign up by, um, actually going in by themselves on the platform I signing up rather than sending a salesman to the site or with a phone call to get them to sign up. If you make it easy for them to just like click and go and sign up, this is the best way for you to get more spot adoption. Um, the third thing to look at is covering more territory. Obviously, if you're looking to increase your spy inventory, it's obvious that you need to expand beyond the city where you started the business and go to other major cities as well a zoo, other countries. We also need to be looking at the sales team and the current sales incentive structure that we have in place. And so you need to be making sure that you have a quality sales team that is able to achieve the quarter. Ah, so you need to be able to set targets for them, or quarter and a measure of this quarter on and give them incentives when the one day achieve it or go beyond it. Ah, but also, you need to be able to, um ah, replace or, ah, look at the team and make some changes sort of to able to achieve your targets in terms of sales 17. KPI Gross Booking Value: Now let's look at our second k p I, which is gross booking value. Grossberg and value is the total value of bookings placed using the platform. And so this is the total dollar amount off bookings that are placed on the platform every month. And, um, you know, the reason why this is important is because you need to be ableto add increments off grows booking value faster. So, you know, if you see here that in the year that we started in 2017 we had $3 million off gross booking value, Um, you know, took us a whole year to get the four million. Ah, but then the next year, the pace picked up where we had a you know, t two X. The next year, things picked up where we have two X growth in gross booking value. Um, and then that gross kind of slow down in 2020. Now, let's look at the insight we get by measuring gross booking value. And how should spot, book or treat. It's gross booking value here. You know they need to be measuring the speed off getting to the next $10 million off gross book value. And so Ah, it's important for them to be measuring the speed. Our the pace by West still growing their business. And they can do that by looking at the gross book value and seeing when the next 10 million will be added is it's gonna take them another whole year. Or is it gonna take them? Ah, a couple of months to get to the next 10 million. Um, you know, obviously they need more spas, more cities and more users. They need to be firing on all cylinders for them to achieve these targets and show they need, You know, obviously the inventory side which spas they need mawr end users to be using the mobile lab . Um, and they need to expand and mawr territory as well. Ah, the searching they need to consider is the need to create good PR public relations around their service. And ah, that comes from hiring a strong marketing team to be leading these efforts 18. KPI Average Spend Per User: now on to the next KP I and we will be discussing the average spend per user, which is defined as the total booking value divided by the number of unique users. The reason why this KP eyes important is because you want you uses to spend mawr on the platform. And so the more you are able to get each user to spend, ah, more services and products on the platform, you're able to extract more revenue. Um, and so we will be looking at that, um, and this Look at the formula for this K p I, um, which is taking the amount off total booking value divided by the number of unique users on the platform and the given period. And so, in this example, the total booking value is a $1,000,000. When we divide that by the number of unique users, um, off 1000 we will get $125 which is saying that each unique user spent an average of $125 in this month. Once we get that value and were able to measure it on a monthly basis, then we complied that on a chart that can tell us exactly what the trend has been. Um, for amongst amongst that we can see here that the year started out slow in January at $89 then picked up a lot by April 250 then dipped back down in May. 2 $125. No. Now what kind of inside do we get from looking at the average spend per user? What we need to look at it is basically and how to increase that average spend. And so the way that um SpA Booker can work to get the number higher is to work with the spots to offer their higher value services. So basically, you need to work with each spot o tell or what kind of services they're offering to your end users. Ah, and so you can extract the highest value from these services. The second thing to look at is engaging the current users using email and social marketing . The certain thing to look at is improving the product features, the more we can work on our actual mobile Abbott improve the features, the more will get out of the users that we have today on the platform 19. KPI Take Rate: let's look our keeping item before, which is take rate, which is basically the commission or our take divided by the total booking value. So if the total booking value is $100 an hour, take from it is $30. This is saying that our take is 30% from the total booking value. And this is perhaps the bulls important K p I in a marketplace business that investors of third parties look at because it basically determines your power in the marketplace. If you are the more powerful you are in the market place, you can actually ask for a higher commission rate from these spas. So this is a really important keep your eye to look at now. If we look at the formula for take rate, it will be, ah, the commission divided by the total booking value. Um, the example we're looking at here is for the monks. They made a commission of 300,000. Ah, the total booking value was one million, which means that the take rate is 30%. Once we measure the take rate, um, on a monthly basis and were ableto plot that on a monthly chart that can inform management on the trend that we're seeing and see Ah, where were are today and where we've been. Historically, you see, we started off the year 30%. Um, we can a little better of February. Ah, that could be also due to the sales mix. And so if you're, um, if you have some spots with a higher take rate on, some would lower they create, and you still mawr in any specific month in the ones with the higher take rate that will skew up your overlord overall take rate toe a higher ratio, Um, and so you want to be able to negotiate contracts where your take rate is increasing over time. Now let's look at the inside from take rate and what action can spot, book or take to increase its current take rate? You know, obviously the most obvious one is to negotiate higher commission rates on this comes with time and being the dominant player in the market, and so, most likely, when you're starting out, there's a marketplace business. Um, you are starting with a lower commission so that you can attract more spots to join your platform as time goes on, and as you establish your place in the market and attract more consumers to abuse the platform, then you're able to then command higher commission rates, um, from new spas that you sign on, as well as being able to go back and negotiate higher commission rates on prior our agreements. You also need to look at the billing accuracy and make sure that you're building the right amount in each and voice on. So you need to be able to automate your invoicing so that it follows the structure and contract Ah, and not leave revenue on the table. Um, the 13 to look at is to revisit earlier agreements. Like we said, as you grow your power in the marketplace, you're then able to go back and look at your spots that you signed on at the beginning of your business and increase the commission rates there as you as much as you can 20. KPI CAC Customer Acquisition Cost: Now let's look at our KP I number five, which is customer acquisition costs, or CAC, which is defined as the marketing costs divided by the number of new customers in the period. And so this is an important KP I because if you are spending too much or marketing to attract one customer, one end user, then your business will not be profitable. And so I need to be able to keep an eye on that. Um And so if we look at the formula for customer acquisition, cost is going to be taking the marketing costs in the period, um, and dividing that by new users. And that will be, in this example 200,000 of marketing costs divided by the number of new users, which were 25,000 in the period, which will give us $8 in acquiring each customer. So just to get one new customer, we're spending $8. Um, once we get that in, we can applaud that on a multi chart and find out, um, you know the trend in spending, looking at the trends and seeing that we spent $8 in January and acquiring new customers versus in April, we spend $20 will help us pinpoint where are the pain areas and acquiring new customers. Now let's look at the inside we get from customer acquisition cost. And what kind of action can Spa Booker take to decrease its customer acquisition costs? You know, the first thing we need to look at is monitoring customer acquisition costs for each marketing channel, so you know usually have different marketing channels. One could be Google AdWords. Another could be YouTube advertising or Facebook advertising. Um, then you need to be looking at each of those individually and seeing where you're getting the most return on each dollar spent. Once you see that, then you're able to optimize and invest mawr and the channels that bring in more customers to a platform. The second thing you need to look at is creating better marketing content, You know, today most of the content that is consumed via Facebook instagram um, or YouTube is video content, and so we need to be able to create ah, you know, content. That's, um, par or better than what everyone else is offering. In order for us to attract eyeballs and interests in the business that's certain to look at is creating incentives for the marketing staff to get them to drive the business forward by creating better marketing content and driving MAWR initiatives in the UM, acquisition of new customers. 21. SpaBooker ScoreCard: Now that we measured all this KP eyes for spa Booker Ah were able to create a scorecard for the month of May 2020. And so the way the scorecard will look like it will grab all the KP eyes that we tracked you over your spot Inventory grows, grows booking value average spend per user Take rate, customer acquisition cost. Ah, we then can layer in the actual measurement for May 2020. So, on the inventory gross, we had 50% actual on gross booking value. 10 million average spend per user, $125 take rate 30%. Then we can layer in the target and developing the target comes by looking at his circle data to see where the business has been. And also consider where we want the business to go. Combining the two sets of facts Together we can then create a target. And so, ah, for inventory gross. We are targeting 80%. So then we can see the lag, which is then, when we layer in the delta on a percentage basis, the leg is 38% and inventory grows. We're still lagging 33% in gross booking value. Um, and we're doing actually better on average, spend per user by 25% and then you can see relatively easy by looking at this scorecard. Our where were are where the different metrics in the business, um, and providing this scorecard to management on a monthly basis will help them make decisions that will drive the business forward. 22. Recap Gutbuddy Part A: Now let's do a quick recap off or got body yogurt review. We said that KP eyes are a study over drives the business forward. And so we said that every business is striving for increasing the revenue and degrees ing their costs on order for them to increase profitability. Eso The first business we looked at is God body over it, which is a manufacturer off yogurt that sells their products of II, a distribution network, which is supermarkets and stores. The objective off the business off guard body yogurt is to sell as much yogurt as possible and as many supermarkets or stores as possible. And so the first objective we looked at is still as much as possible in each store chain and also improve the cost of goods, Um, and have enough cash on hand so that they can see their business through, um, and not run out of cash. We looked at the revenue, which was $20.2 million for the year cost of goods sold, which was 15.4 gross profit. Um, and then we said that we were looking at the epidural, which was 300,000 and then we said that the objective is gonna be to increase the revenue and decrease the cost of goods sold as well as decrease the operating expenses. And so now we're looking at the drivers of the business. So when we look again at the income statement, we see that, um, the revenue KP eyes that we will need to look at are the revenue growth year over year, same store sales year over year. Um, and we also said we want to look at Coast KP eyes such as gross margin and gross margin purse que. Now looking at the first k p I, which is a revenue KP I revenue growth year over year. We said that the way to do this is to look at sales and, uh, the month end. So if we're looking at the month of May 2020 we would need to look at the sales year to date in May 2020 and in this case was $7 million. In order for us to measure the growth year over year, we need to look at the exact same period your today sales in 2019 which were $6 million on then we said that the formula is going to be taking the $7 million which is this year. This year's um you. Today sales minus six million. Last year's you today. Sales of divided by the hazier on the base years 2019 in this cage. In this case, which is $6 million that will give us a 17% growth rate year over year. Once we have the number off 17% in the month of May. We can then plot that on a monthly chart and see how we have been doing over the month. And, you know, we can see that we started the year a little bit slower than picked up in April to 40% and then went back down to 17% which is still growth. We're growing the business, but, ah, not as um, we would want it to be. And so we need to look at the pain points in the business to understand why that is now, the insight would get by looking at revenue growth. Year over year is that if our companies targeting 80% growth year over year and we're looking at 17% year to date, that that might be a cause for alarm and might force us to look at the business a little bit more closely so that we're not missing or target comes your end. We looked at our second revenue K p I, which was same store sales year over year, and we said that the reason why same store sales year over year matters is because we want to look at same store growth. We want a strip out, any effect off expansion in the business to other stores and focus on one store. Ah, and the reason why this helps is that when we know that's were selling Maurin the same store, that means we're spreading the message. We're promoting enough and getting enough awareness about the product in the same store. Ah, and so we said the way to calculate that is by looking at, in this example, the month of May, looking at Whole Foods sales, which were $2 million you to date on and then looking at 2019 in the same period, and that was $3 million which was immediately. You can see that we are making less money from Whole Foods this year, And so when we look at the formula will say it's two million minus three million last year , divided by three million. In this case, it yields and negative 33% which is saying that our business has declined 33% in Whole Foods. Now the insight we get from that is at a decline in the same story. Year over year triggers further study. And so the first thing we need to look at is, Are we creating enough awareness, meaning or reeducated, the consumers and whole foods about our product? Um, are we making enough promotions? Are we advertising enough? Are we creating enough promotions and discounts? This is technique used by a lot of manufacturers, which is to create coupons. Sort of people can use the product, try it at a cheaper price like it and then come back and buy more of it s. So maybe we're not doing enough of that. The 13 we need to look at is, Do we need to hire more sampling or samplers in the store? When you go to a BJ's or any store like that, you find people standing giving out samples so that you can try it and taste it and see that you like the product on. They'll go on by. I'm or, you know, perhaps we're not doing enough of that. And that's why our same store sales of declining year over year 23. Recap Gutbuddy Part B: We looked at Coast KP eyes and we said that gross margin is perhaps the most important KP I for manufacturing because it gives an idea to investor than third parties on the ability for the business to extract profit out of each sales that they make. And so we looked at this income statement view, and we said in May 2020 hour yesterday, sales were seven million Costa go sold were 5.3 million gross profit were 1.7 on, and based on that gross margin was was 24% which has taken the 1.7 million dividing it by, Ah, the seven million. Um, you know, and this speaks to the efficiency over the manufacturing process because the more efficient we are and producing our product, they lower the cost will be to make it and so close to go solo be lower, which will yield to higher gross margin. Now what kind of insight that we get from looking a gross margin for a manufacturing business? If we expect a gross margin around 28% and we have an actual gross margin of 24% we have to consider a few things. The first thing is that are we wasting material? Ah, big part of the course that goes into the inventory costs that then turns into a close to go sold is that if you're wasting raw material or packaging material, all of that goes into the cost of goods sold. And so you need to be looking at waste. I'm making sure you're not, um ah, waste ordering more than what you need and therefore wasting material. Um, you know, are we spending too much on freight end frayed end is the course toe. Bring in the products, the raw material and packaging that you're using in the production process. And so the course for the trucks and the freight and to bring in these material is considered part of the cost of the inventory that you're making, which then when the soul becomes a coast ago sold. And so we need to examine whether we're spending too much on freight and whether there are alternatives to the trucking or the freight and service we use. Currently, the 13 to look at is whether we're facing rising costs such as labor costs or the factory overhead. The second course, KP. I would look at WAAS, the gross margin per sq, which is the same thing as gross margin. The exercise was just dead, but on askew level. And we said the skew is a way to identify products. And so each product, if we bank has a skew number and skew stands for stock keeping unit so each each product has Q number. And when we do this exercise, we're looking at once que In this case, it's ah, banana yogurt. And, um, the way we look at it is looking at a piano or income statement view off just one product. And we said that banana yogurt was our most popular flavor in the month of May, and we sold $2.5 million words off banana yogurts. The coast off goose Old War was two million and the gross profit was half a 1,000,000. And that yields gross margin of 20% which, interestingly enough, is lower than the overall gross margin. And so, if the company as a whole has a gross margin off 24% and the one skew that we're looking at has only 20% which is lower gross margin this indicates that this is one of the skews that's pulling down our overall gross margin and something about but any over it needs to be looked at in terms of production costs. And so we need to look at whether the cost to produce the skew as meeting our expectation. Now, the insight that we get from looking at the gross margin per sq in this case, if the banana flavor courses too high is, as we said, a re wasting material in the production process. Um, are we spending too much on freight? And, um and also we need to ask yourself whether we are facing rising costs such as labour, um, utilities accessory. Now, one thing we should look at issue what goes into the cost of goods sold off once. Q. I mean, this is important in understanding. Gross margin for the skew is that we need to know what goes into the production. And so, in this case, we're making banana yogurt raw material. Um, here will be banana and milk. You know, typically, manufacturers off food don't actually go out and buy fresh bananas from suppliers. What we do is the by, uh, puree which is a banana puree in bulk, which is thousands of pounds on even ahead of time. Um, in agreement, sort of beacon luck in a price on. So it comes in as a frozen banana puree, and you need to keep it in a frozen storage. And it has usually about two or three years off shelf life. It doesn't last indefinitely. It has a life of about three years. Beyond that can't use it. The second thing we need to look at is labor costs, which is the actual employees that are working in the plant to manufacture the yogurts. Third thing will be the overhead, which is the costs associated with the plant itself. So this will be the rent ah, the utilities or any other costs associated with running the plant. The fourth item that goes into close to go sold will be afraid End, which is the course to bring in the raw material, which is considered part of course ago, sold 24. Recap Gutbuddy Part C: We looked at balance sheet KP eyes, and we said that the objective from measuring balance she KP eyes is to reduce the collection cycle and to increase the cash out cycle. And so it's a dynamic off, bringing in cash faster and spending cash slower. So we're always ahead in terms of our cash position. We said that the two men metrics that we look at are the 1st 1 as they sales outstanding, or the S O, which is the number of days it takes us to convert sail into actual cash. Um, and the second metric that we look at is D P O. Which is days payable outstanding or the number of days it takes us to convert a invoice from a supplier into a cash outlay. And so how long it takes us to pay, And so typically, we need to be receiving money faster and, um, spending a little slower. So that's where always ahead with cash. And so an example would be if our the eso is 45 days. Um, you know, our depot should be somewhere around 70 days arm or so that we have sort of elite time or an advantage and the cash collection versus cash spent. We looked at, um, they sales outstanding in detail. And we said that the day says outstanding is the number of days it takes to convert sales into cash. Um, and then we looked at the formula behind it, which has taken the accounts receivable dividing it by created sales. And we said that we're not really concerned with cash sales in this case because we're only looking at those sales that we make on credit. Um, and we get paid in the future on so cash sales alone count in this case will be only credit sales s. It'll be comparing apples to apples. Uh, accounts receivable and created sales are associated together, and so that's what we're comparing on. Then we are multiplying that by the number of days in the period, And so we did that for God body for May 2020 and we said their accounts receivable over $2 million. Their credit sales were one million. Multiply that by the number of days in May, which was 31 days on, gave us 62 days, they sales outstanding. And we looked at the insight we get from measuring the air. So, you know, if we looked at the industry average and it's 45 days for collection cycle and we're doing in this case 62 days, you know that's too high, something here that needs to be fixed. And so the first thing we need to look at is Do we have slow paying customers? Usually, we said, usually your biggest customers are your slowest because they know that they can command that sort of tolerance in the market and, you know, on they know that you will. You want to sell to them, and so you'll you'll wait for your money. You So you want to push with them and try to shorten the cycle of a little bit? Um, the second thing you to look at is are renegotiating good payment terms in our new contracts, and so you need to be looking at the new contracts you're drafting with new customers. Now you have a chance. It's a fresh stars with new customers. Make sure that these contracts have good credit terms or payment terms that will allow you to collect sooner. So try to push for 30 days or 40 days of most with these new customers. Now, the 13 to look at is, you know, are we making it easy for customers to pay? You know, Meaning You know, if you look at an invoice from our company, are you able to see immediately the best ways to pay us? You know, including the banking information on there for people to send this wire and a C h. Are we listing our contact information? If they have questions, you know, this kind of thing. We looked at our second balance, she k p i, which is Ah, dp or days payable. Outstanding. Ah. Which is the number of days it takes to, um, pay a vendor invoice. And the formula for it will take the amount of accounts payable divided by Costa. Go sold, um, and multiply by the number of days in the period. Um, you know, for God body for May 2020. We said that that will be $3 million in accounts payable, divided by, um, $1.2 million in Costa goods, um, and multiplies by the number of days in May which were 31 days. That will yield 78 days the inside to get from that is that by looking at the DP or days people outstanding, the industry averages 90 days. And so if we're looking again, got body and it has 78 days, it means that something needs to be fixed. We are paying too quickly. We need to increase that cycle and pay a little bit later. And so the first thing to look at is, you know, are we negotiating good payment terms with the vendors? So we need to look at our suppliers and see the contracts and agreements we have with them on whether we can push that a little bit into the future to get more to the industry average of 90 days on. The second thing to look at is, are we paying at the end of the term? And so we need to be making sure that we are instructing the accounts payable department to pay these invoices toward the end of the window. And so of the suppliers allowing us 60 days or 90 days, there's no point in paying that, like in the first week, wait till the end of the period. So make sure to instruct your accounts payable staff that they need to be paying. At the end of the term, we looked at the KP I scorecard for God body and we said that we can layer and all the KP eyes that we measured basically in one scorecard for management s so that he can look at it and see in the Delta column here on the right that we are lagging on every single K p I. And so this gives management a quick glimpse of the business to see where they need toe fix any pain point. 25. Recap SpaBooker Part A: Now let's recap our understanding off the business model of Spot Booker and make sure we understand what a marketplace businesses and how the business success is driven. You know, we said that spot Booker is sort of a middle man or the marketplace that between the consumers, which was the spy users and on the other side of the market is the spas themselves. And so you know, spa Booker has developed relationships, was spas in many cities, and they're able to connect them with the end users and stand in the middle and make a commission on every booking the make for these spas. We looked at the objectives of the business, and we said that Spot Booker their objectives are to increase the supply or the number of spots available on the platform. And the second objective is to increase the number of end users so that they are maximizing the number of spas and also maximizing the numbers and you end users. Ah, and the third objective is to increase the take rates on. We said that the take rate is defined as the commission rate that they make on each booking . We look at the income statement for Spot Booker for the year, and we noticed that they make about $10 million a year in revenue. The coast of sales, which is, which is what they pay to spas. $7 million. The gross profit is three million, and they're operating Expenses were four million. Therefore, they have a negative earnings or Buddha. We said Ebola stands for earnings before interest, tax, depreciation and amortization, and that usually investors look at Ebola ah, as a way to measure profits because it excludes the non operating items such as interest, tax, depreciation and amortization. Um, and so you know, obviously, we said that the objective here is to increase revenue, reduced cost of sales and reduced operating expenses. So the factors that will drive spa Booker business success will be gross in their spot inventory, the second revenue item will be grows booking value. You need to actually increase the gross booking value, and they need to increase their take rate in order for them to make mawr on each booking made on the platform. Um and then on the cost side, one of the biggest costs were customer acquisition calls s o. We need to tailor that KP eyes around these metrics here. So the first cape I would look that was the gross and spot inventory year over year and the example we looked at was May 2020. And we said In order for us to measure that, we need to look at the number off new spas that were added to the platform as of May. A youth today 2020 which were 30 spas compare that to last year in the same period a year to date addition off new spas, War 20 spas and said, We said we take the 30 minus the 20 spas and invited by the base year, which is 2019 and that will give us on addition off 50%. So we have a new increase, or gross and spy inventory year over year, 50% in this case. And then we took that and plotted it on a monthly chart so that we can see where we are and how we're growing that inventory number months over buns in 2020 we looked at the inside that we get by looking at the increase in spots. Sign up. So the way we increase our part sign up is to enhance our product, offering both from a design standpoint, which means that we should make it more appealing in a design perspective to both the spas and to the end users and increase the features that are available on the product on also make it easy for spots to sign up. And you know the best way to make it easy for spas is toe. Have a self service sign up, meaning you don't have to wait around on your sales person to make the phone call and get the spot to sign up. Make it easy on the actual website. If I own a spa, I go on the website and sign up for the platform to become a vendor or spot on the platform . Ah, the 13 to look at is covering more territory, and this is obvious. You know, the more territory would cover, the more we can increase our spot inventory. We also should look at our sales team, making sure that we hiring the best of the best and creating the incentives that will drive the sales team to create the best results. The second key p. I would look at for spa. Booker was gross booking value, which is defined as the value of bookings placed I using the platform. And we said that we want to be monitoring this value year over year to make sure that we are incrementally adding to it at a faster pace. We looked at the inside that we get from this K p I and we discussed how should spa Booker treat its gross booking value? Um, you know, we said that they should be looking at at the speed of getting the next two million, which means the, you know, the increment of adding 10 million is that taking us one year on and then it is taking us for the next 10,000,006 months and then reducing that the three months, Basically, we want to see an improvement in the speed off, adding the next 10 million. You know, obviously, the second thing to look at here is like more spas, more cities, more users. You need to be firing on all cylinders for you to increase your gross booking value. Um and then also we said that we need to create, you know, solid PR campaign around the service to increase awareness on get end users to learn about your product. We looked at Cape our number three, which was the average spend per user, and we said that that's defined as the total booking value divided by the number of unique users. And so, ah, the reason why we care about this KP eyes because we want to extract the most money out of each individual user who uses our platform. And so we said that the formula for this will be total booking value divided by the unique users in the period. And so, in this example for May 2020 we had a total booking value of $1 million divided by the number of unique users, which were which were 1000. And that gives us $125 average spend per user. And the months once we have that we plowed that on a monthly chart and we can see where we're at from a trend standpoint on. Then we can see what we did, right? Perhaps here in the month of April, we did something right, Um, so we need to learn from that replicate going forward now, the insight or the action we can get by. Looking at this metric is how the spa Booker increase average spend per user. And we said the first thing to look at is working with spas. Toe offer the higher value services, making sure that you know, if the spot offers, ah, high value um service that this is listed in on your marketplace so that users can pluck it . The second thing to look at is to engage the current user base with email and social marketing. Ah, third thing is to improve the product features sort of. The users are happy with the product and increase their frequency of use. 26. Recap SpaBooker Part B: the fourth KP I we looked at was the take rate. And we said that that's perhaps the most important KP I when it comes to marketplace type business models because investors are laser focused on how much you're able to command in commission. And so take rate is really the commission or are take divided by the total booking value. Um, and so, you know, if we are booking $100 for one sale, you know, how much commission can we get out of that? Um, you know, is $30 or 30% or more? The higher the better. Obviously, Um and we said that, you know, the formula to calculate take rate is gonna be by taking the commission divided by the total booking value. And for the month of May, we looked at 300 k in commission, divided by total booking value off one million, and that gives us 30% take rate. Once we measured the take rate and one months on every single months were able to them plot that on a chart and see where the trend has been. Um And so you know, obviously one of the things that will dictate take rate in a given month is gonna be the mix off sales. And so if you have a mix that higher on spas, where you have higher commission rates with them, that will dictate the higher overall take rate. Um, on the opposite is correct. So then, if you have a mix of high concentration of Lok, um, spas, you have lower commission rate. With that, we'll pull down your overall take rate. And so, ah, you want to be continually looking at your contract agreements with the spas and making sure you're getting favorable. Take rate agreements Now what insight or action can we get out of looking at? Take rates? Eyes, you know, how do we increase our take rates on? And we said that the best way is to negotiate higher commission rates with spas and ensuring bidding accuracy. Which means we want to make sure the invoices that are going out are correct. Um, and that we're not leaving any money on the table, um, and also by revisiting agreements. So if we have agreements in the past, where we when we started the business, we were charging super low commission rates from spas we want to go backwards and look at these agreements and try to re negotiate for higher commission rates. The final KP I will looked at for spa Booker was on the course side, which was the customer acquisition cost, which is taking the market and cost and dividing it by the number off customers in the period. And so ah, the formula for that will be taking the actual marketing costs and dividing it by the number of new users, which, when we did that for the month of May, we said marketing costs were 200 K divided by new users, UM, or 25,000 users. That gave us $8 off customer acquisition costs, which, which is saying we spent $8 to acquire, on average, to acquire new customers once we have the figure, ah, weakened them. Plot on a multi chart and see where the $8 have been trending. And so you know, it's $8 at the beginning of the year, kind of picks up and it takes down and then kind of spikes up on April. Ah, must have been more expensive campaign that we ran in April so we can look at this trend and then learn where, um, where we did well and where we haven't and learned from that going forward. Um, the inside, obviously we get by looking at the customer acquisition costs is that we need to decrease that cost. So you know, the best thing to do is to monitor the cost on each channel. And so if we're spending on YouTube on Facebook and Google AdWords, we need to be monitoring each one to find where, um, where we're getting the most bang for our buck or how the highest return on our investment . And so we need to look, and we need to be looking at each marketing channel. The second thing to look at is create better marketing content. Um, and so today, um, the marketing content that we see mostly is video. Um and so we need to be able to create competing videos that can catch the eyeballs and interest from customers. And the final thing to look at is creating incentives for the marketing staff to be pushing harder and, um, getting the message out about our platform. And now that we've measured all this KP eyes for spa Booker. We're able to then take them and put them all in one scorecard That looks at all of the metrics that we looked at, um, and later and the actual and the target on. We said that the way to develop targets is by looking at historical data and realizing where the business has been and then looking at the future and aspiring looking at what we aspire to combining the two together weekend then, um, uh, create a target on. So we can also later in the Delta to see you know immediately that we're lagging on spot inventory by 38%. We're lagging on gross booking value, but we're doing better whenever spend per user. We're lagging on take rate, and we're doing better on customer acquisition cost compared to target. 27. Final Thoughts: Now that you've seen how I build my KP I dashboard, you're ready to go out and implement it on your own. Feel free to build it from scratch, or you can download the version that I attach in. The description of this video building a K P I dashboard, is a great first step, but I highly recommend, considering these points when you deliver your KP eyes, first point I would like to make is to be consistent. Consistency is key, and it means that you deliver the same KP eyes on the same time each month. If you stop delivering the KP eyes for, say, a month or two because you're busy or for whatever reason, guess what you will lose engagement for those stakeholders who are consuming your data. The second point I would like to make is to deliver insight on not data. Delivering the data is a great first step, but an insight is what you ultimately need to deliver to the stakeholders. For example, if you are delivering a DS okapi, I for they sales outstanding and you're suggesting that it is about 65 days, you need to be able to explain why it is that high. The reason for a high ideas so is most often related to collection of accounts receivable. So you need to examine that and deliver some information on why that is a maybe a trouble customer. The Sir Point is toe pill, a story deliver and KP eyes of the story is a key skilled toe learn throughout your career . Here's an example of how to deliver a K P I as a story say that you're DEA so they sales outstanding is in January 48 days in February, 53 days and in Marsh 36 days. So the way to tell is that the story is to explain the reason why it goes from 48 days to 53 to 36. You may have reasons as collection issues with a big customers who say you haven't accounts receivable with a big customer that is very slow to pay. So the reason for the increase in the Esso here could be the slow payments with a large clients, Um, you could have then receive payment between February, a marsh and the result in your dear soul dropping from 53 days to 36 days. The other reason that you could have is for the drop from 53 to 36 is a new contract. Um, was client that calls for a shorter period for payments. So say that a typical payment that you have in your contracts today. It's 45 days to receive accounts receivable. You negotiate a new contract with a large client that calls for 30 days. Suddenly, that's gonna drop your average from 53 to 36. I hope that you enjoyed this class. And if you'll go out there and implement KP I dashboard, my name is Bill Hanna and see you next time.