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Anonymous A

on Dec 05, 2023

Global

Question about

Analysis Question

Hello, thanks for this interesting case..

I have few questions regarding analysis question.. Isn't it supposed to be basic breakeven analysis? why did we divided 48k/12k students? and not making a core equation of: Profits = Intl. + Local Profits?

It would be something like:

48M = (12k*price*50%(PM)) + (18k*9250*PM) PM on the second one, was not mentioned and I assumed it to be the 50%?

Thanks

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Ian

Coach

on Dec 06, 2023

Hi there,

Could you please help us help you? Can you be more clear in exactly where this section is and where your question relates? (screenshot helps a lot)

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2 comments

Anonymous A

on Dec 06, 2023

Hello, thanks for your answer truly appreciated! So let me clear it out. On the 5th Questions, on step 2.. I am wondering why we divided the 48M in Profit by the 12K International Students? What was the idea of that? Shouldn't we basically make a simple breakeven analysis with a core equation of: (Profitability = International Students Profits + British Students Profits) Thanks and I hope it is clear!

Ian

Coach

on Dec 06, 2023

Hey! Looks like we already have an answer above :) Thanks for breaking down the question more clearly!

Cristian

Coach

on Dec 06, 2023

#1 rated MBB & McKinsey Coach

Hi!

Happy to clarify this as I'm the author of the case. And grateful to hear you found it interesting.

Basically, what is happening at this point in the case is that we are investigating alternatives for the client. We're looking into whether they could generate revenue from just increasing their tuition fees rather than selling online courses through the acquisition of Eduline.

In order to make that happen, we want to figure out what is this additional profit that we should be getting for each international student. Thus we want to divide the profitability that would come from Eduline (48M) by 12K which is the number of international students.

That leads to 4K, which is the profitability increase per international student that we would need to get to a similar profit level as that of generating profit through Eduline.

This 4K is profit, not revenue, and since we know that we have a 50% margin on tuition fees, the revenue needs to be double = 8K. This is then the additional amount we should be charging international students in order to reach the same total profitability as the one we'd have after acquiring and running Eduline.

Hope this clarifies your question. If not, reply to this comment and I'll get back to you.

Best,
Cristian

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2 comments

António

on Nov 15, 2024

Thanks for the case! I just have one question about the math you outlined. Currently, it costs £8k to teach an international student (since on a tuition fee of £16k, you have a 50% profit margin). To match the £48M profit from acquiring Eduline, you need an additional £4k in profit per international student. Why not simply increase the tuition by £4k to achieve this? Why do you assume that increasing the price will also increase the costs? The number of students doesn't change, only the price they pay, so why is the margin relevant here? Maybe I'm making some gross math mistake, let me know!

Cristian

Coach

on Nov 15, 2024

#1 rated MBB & McKinsey Coach

That's a fair question. A profit margin is calculated as a percetange and thus applies to whatever the base of the calculation is. You could claim indeed that the costs shouldn't not change, which would be a fair argument to make. At the end of the day, what matters is sharing this thinking with the interview, which already confirms to them that you are doing the sort of thinking that they'd want to see in a consultant.