How CFOs analyze their EBITDA like a strategist

Deep Dive Analysis: Connecting the EBITDA to your cash

Last week, we discussed the vertical and horizontal analysis frameworks.

This framework gives you two different perspectives when it comes to analyzing the EBITDA.

Use this two-lens approach:

Horizontal analysis track performance over time.

Vertical analysis breaks down any elements into its components.

One thing I emphasized on last time was that the two lenses should be combined.

Ask:

• How is the EBITDA trending over time? Why?

• How does the EBITDA compare to last year’s number?

• How does actual EBITDA compare to budget?

• What assumptions broke down? Channel? CAC? Overheads?

The way you analyze your EBITDA versus last year’s EBITDA or versus Budget is completely different.

When you analyze your EBITDA vs last year, you want to bridge the two to understand what explains the improvement or the deterioration.

However, if you compare your actual EBITDA to the budget, you want to understand where things broke down in terms of assumptions.

You also want to understand whether those assumptions will hold in the future.

If your assumptions don’t hold, you need to reforecast the performance to build a closer view of the future.

One thing to keep in mind is that your analysis will be completely different based on your industry.

What you need to keep in mind is the following framework:

- Understand how the revenue is generated.

- Understand your fixed vs variable costs.

- Understand the levers of the business and how you can pull those levers to grow the business.

Let’s use a typical DTC e-commerce business to break it down.

Here are the core cost levers post Gross Profit:

🛠 THE CFO EFFECT PLAYBOOK (Part II)

Step 1: Shipping

Shipping isn’t just an expense.

It’s an emotional trigger in the customer journey.

Most consumers would rather pay more for a product with “free” shipping than pay less and cover shipping separately.

It doesn’t make rational sense, but it makes psychological sense.

So, shipping becomes a pricing challenge.

It’s a cost that must be absorbed into your COGS or margin structure while still keeping your offer competitive.

But the real challenge is on the backend: logistics strategy.
Do you ship from one central location? Or do you decentralize across multiple fulfillment centers?

A single warehouse is simpler and easier to manage.
But it drives up delivery times and shipping costs for customers who live farther away.

On the other hand, multiple warehouse locations reduce shipping costs and delivery times but increase inventory levels and complexity.

Another aspect to factor in is the country you operate in.

If you are in the UK, shipping from one single location makes total sense.

The distances are small, and shipping expenses are not prohibitive.

But, in a large market like the U.S., the strategy shifts.

The territory is so big that picking one location could increase shipping time, affecting your ability to sell.

Even worse, the distance from your customers could mean higher prices limiting or lower margins, limiting your ability to grow the business.

The silver lining is that over 80% of the population lives in just 20% of the territory.

That means with a few strategically placed warehouses, you can cover most of the country efficiently.

But it’s a trade-off: faster shipping at the cost of more working capital tied up in inventory and more overhead managing stock in multiple locations.

And here's the nuance: the cost of shipping is not just a P&L discussion.

It directly links to inventory planning (balance sheet) and customer experience (revenue retention). Treat it as such.

Step 2: Warehousing

Most operators think of warehousing as a fixed or semi-variable cost.

Racked up monthly and relatively predictable.

But that mindset ignores the real drivers behind warehousing expense: inventory velocity, demand forecasting accuracy, and SKU rationalization.

This is not only about expenses, but also about your business model and how it contributes to the health of your company.

We decided to have a limited number of SKUs by design.

This means curated products and easier choice for our customers.

Less money tied up in working capital.

Easier inventory management and lower warehousing costs.

But I want to emphasize that warehousing costs aren’t just about the physical space. They're about:

• How fast you move product (inventory velocity)

• How well you forecast demand

• Where you're forced to hold stock due to your fulfillment strategy

A company with great demand forecasting and tight SKU management can operate with less warehousing capacity and lower capital locked in unsold inventory.
A company with poor forecasting ends up with bloated inventory and rising storage fee.

Many DTC companies were caught off-guard after the peak of COVID.

They did not expect the demand to shift so rapidly once we went back to normal.

That costed them millions of dollars and often crippled their company into debt forcing them to close.

One thing to keep in mind is that every additional warehouse location multiplies this challenge.
Multiple warehouses = multiple forecasts = more room for error.

So, when you see warehousing costs creeping up, don’t just renegotiate the lease.

Look upstream: your inventory policies, your sales forecast alignment, and your operational discipline.

Step 3: Marketing

Marketing is oxygen in DTC.

But it's also quicksand if you're not careful.

There are two types of marketing inefficiencies CFOs often overlook:

• Channel mismatch: A business might have a poor gross margin because they rely heavily on retailers. But that lower gross margin is offset by lower marketing spend thanks to foot traffic. Conversely, DTC sales on your own website often carry higher margins but require significant investment in paid ads to drive traffic.

• Marketing decay: Your best-performing ad channel today won't be your best tomorrow. Every marketing channel decays with time: CPMs rise, click-through rates fall, and audiences fatigue. What was profitable 3 months ago might now be a breakeven or loss-making campaign.

This means your marketing P&L can’t be analyzed in isolation. It has to be connected to:

• Gross margin (to see if the customer economics support the channel)

• Customer acquisition cost trends

• Retention rates

• Channel diversification (e.g., influencer, paid, organic, retail, wholesale)

If you're only looking at your blended ROAS, you're probably flying blind.

Build dynamic benchmarks for channel health and assume decay as a constant.

Remember that your best marketing is having a bunch of ambassadors (your customers) talk about your products.

This comes with high quality products, great customer journey, and a client centric approach.

It’s important to understand the evolution of your Customer Acquisition Cost (CAC) which is the cost of acquiring a new customer.

But don’t look at this metric in isolation. It’s important to look at it in conjunction with your Customer Lifetime Value (LTV).

If your LTV:CAC is at 3x or above, that shows sustainability in your marketing.

If not, you need to go back to the drawing table.

Marketing is probably one of the most misunderstood levers for CFOs.

We can have a full episode on marketing and how to analyse its performance. Drop me a note if you want to learn more about that.  

Step 4: SG&A

SG&A (Selling, General & Administrative expenses) isn’t just bloat.

It’s the infrastructure of your team, your tech stack, your ability to grow with consistency and control.

The key question isn’t how much SG&A you have. It's whether your SG&A scales efficiently.

• Do additional hires drive margin expansion or just absorb complexity?

• Is your tech stack enabling leverage or layering busy work?

• Are you paying for tools or outcomes?

Too often, fast-growing e-commerce companies pile on SG&A under the banner of "building for scale" without tying those expenses to measurable outcomes.

Your SG&A strategy should be guided by your EBITDA targets, not by headcount vanity.

Step 5: Bonus - Interest expense

EBITDA ignores interest expense.
But your cash flow doesn’t.

Interest expense is often an afterthought.

Until it quietly starts eroding your liquidity.

And here's the thing: interest expense isn’t just about your total debt. It’s about:

• Your working capital strategy

• Your collections discipline

• Your inventory health

When sales teams push for top-line growth by extending customer credit terms, they increase your receivables.

That creates a working capital gap.

One that’s often bridged by your operating line.

Inventory mismanagement has the same effect.

Unsold inventory ties up cash.

That means you need to borrow more to cover payroll, ad spend, or rent.

And every time you lean harder on your line of credit, interest costs go up.

So yes, your sales strategy, procurement decisions, and marketing calendar all impact your interest expense.

It’s a systems problem, not just a financing one.

Final framework from revenue to cash:

1. Start with Revenue
   → Segment by product/channel

2. Move to Gross Margin
   → Analyze contribution by SKU/channel

3. Dissect Operating Costs
   → Map shipping, warehousing, marketing, SG&A to sales

4. Factor Interest
   → Tie back to working capital and balance sheet decisions

5. Validate Assumptions
   → Budget vs. Actual. Trend vs. Target.

Here’s the mistake most operators make:
They look at their P&L, balance sheet, and cash flow statement in silos.

They treat warehousing as an overhead line, not a balance sheet decision.
They treat interest as a cost of capital, not the result of bad inventory planning.
They treat marketing as spend, not as an investment with decaying returns.

But when you start connecting these dots, when you see how every line impacts the others, you can build an operating model that’s not just profitable, but scalable, resilient, and fundable.

Growth doesn’t kill businesses.
Unstructured growth does.

Next Week’s Episode:

🔜 Working Capital: The silent killer

Most finance leaders obsess over revenue and profit.

But the best ones obsess over working capital.

Working Capital can quietly make or break your company.

Meanwhile, most growing companies fall into a trap:
✅ They chase sales without watching receivables
✅ They stockpile inventory without measuring turnover
✅ They finance long-term assets with short-term debt

And then wonder why their cash disappears.

Next Sunday, I’ll tell you about:

✅ Why misunderstanding working capital derails growth, especially when sales are booming
✅ How to connect your P&L, balance sheet, and cash flow to spot liquidity risks early
✅ Tactical ways to transform working capital from a blind spot into a strategic weapon

Because sustainable growth isn’t just about selling more.
It’s about structuring your finances to support it.

If you're ready to stop leaving cash on the table, and start turning working capital into a competitive advantage, you won’t want to miss this episode.

Talk soon,