Case interview examples › Profitability
Profitability case interviews
The case type first rounds set most often. Profits have fallen, or sit below where they should be, and you find out why and what to do about it.
How a profitability case runs
The brief is short: a client whose profits have fallen, or a business unit earning less than its peers. The interviewer wants a diagnosis before a cure, so the first half of the case is about locating the problem. Is it revenue or cost? Within that, which product, customer group, channel or cost line moved? Expect an exhibit with a few years of figures and the question “what do you see?”.
Once the problem is located, the case turns to fixes. Good answers size each option, say which comes first and name the main risk. A case that opens on profitability often ends as a pricing, cost or growth question, so keep the structure open enough to follow it there.
A structure to start from
Why has profit fallen?
- Revenue
- Price per unit
- Volume sold
- Mix of products, customers and channels
- Costs
- Variable cost per unit
- Fixed costs
- New or one-off costs
- Outside the client
- Market growing or shrinking
- Competitor moves
- Input prices and regulation
Make it the client’s tree before you present it. Name their revenue lines and cost lines instead of the generic boxes: a hotel’s volume is rooms times occupancy times nights, and a mining company takes the market price, so its cost branch carries most of the answer. Then say which branch you would test first and why.
The maths it tests
- Profit = (price − variable cost) × volume − fixed costs
- The equation the whole tree hangs from. Write it with the client’s own numbers early.
- Margin moves in percentage points
- A margin that falls from 20% to 15% has fallen five points, which is a quarter of the margin.
- Break-even volume = fixed costs ÷ contribution per unit
- Useful when a fix adds fixed cost and you need to know how much volume it must win back.
- Growth compounds
- Two years of 10% decline is a 19% fall, not 20%.
Where candidates lose marks
- Walking through every box of the tree before looking at the data the interviewer has already given.
- Treating a falling margin as falling profit. A business can grow profit while its margin shrinks.
- Stopping at the diagnosis. The interviewer wants a recommendation with a number on it.
- Missing the outside view. If every competitor’s margin fell too, the cause is the market, not the client.
Profitability cases to practise
- Hôtel des Lilas Foundation Hôtel des Lilas, an established hotel in Paris, is watching its profitability slip — find out why and decide what to do about it.
- Truvale Medical Foundation Truvale Medical's pediatric infusion-set line has quietly gone from its best margin to its worst — find where the margin went and size the recovery.
- VeloRide Studios Foundation VeloRide Studios, a 22-location indoor cycling chain in Colorado and Utah, lost money last year and its lender wants a 12-month plan to operating breakeven before it will refinance the debt.
- Larkspur Print and Mail Foundation Larkspur Print and Mail is watching its traditional print work shrink while short-run digital and mail volume grow — find the recovery mix.
- Blue Tide Logistics Intermediate BlueTide Logistics needs a strategic perspective on where its shipping industry is heading — no single insight unlocks it, so the analysis has to explore the industry dynamics.
- Ironbridge Castings Intermediate Ironbridge Castings has swung from healthy profits to losses in two years, and the board wants a recovery plan before the autumn banking review.
- Silverfern Keys Cove Intermediate Silverfern Keys Cove, an island resort in the Whitsundays, must take fixed cost out to meet a bank covenant while a renovation program depresses occupancy.
- Delancey Fine Chocolates Advanced Delancey Chocolates, a premium US chocolate maker, is watching profitability erode under input-cost inflation, price-realization leakage and shifting product and channel mix — how does it reverse the slide?
- Ironvale Mining Group Advanced Ironvale Mining Group, a large iron ore prospector and extractor, must lift profitability in a market that oversupply has turned brutally price competitive.
- Kestrel Airlines Advanced Kestrel Airlines, a mid-sized US airline, must return to operating breakeven within 12 months or face a forced sale.
Other case types
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