Break even point analysis

Hi Lena,

I think this is an interesting question that may be relevant for many people. I would be happy to share my thoughts on it:

• Given that no revenues are generated in the first 5 years because the wine must mature, and higher revenues are generated in year 6 from initial investment costs, you do not have the same yearly profits from year 1 onwards, making the application of the break-even formula impossible.
• As such, I would advise you to calculate the client's profitability for years 1-6 individually, and then apply the break-even formula for the remaining years.

If you would like a more detailed discussion on how to best prepare for your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen

Hi there,

The others answered this excellently. 

I just want to add how important breakeven is. Make sure you truly understand how Breakeven works, including all of the various applications (solve for # of years, VC, FC, investment, # of units, price, etc)

Because the cash flow is not the same every year, so you cannot use the formula as it is.

If the interviewer asks you to estimate this how it should look like (of course, you can just estimate the cash flow up to year 6, and then apply the formula to get to breakeven year):

1. -13,5k -13,2k (-26,7k)
2. -13,2k (-39,9k)
3. -13,2k (-53,1k)
4. -13,2k (-66,3k)
5. -13,2k (-79,5k)
6. -13,2k +30k +18k (-44,7k)
7. -13,2k +18k (-39,9k)
8. -13,2k +18k (-35,1k)
9. -13,2k +18k (-30,3k)
10. -13,2k +18k (-25,5k)
11. -13,2k +18k (-20,7k)
12. -13,2k +18k (-15,9k)
13. -13,2k +18k (-11,1k)
14. -13,2k +18k (-6,3k)
15. -13,2k +18k (-1,5k)
16. -13,2k +18k (3,3k) → Break Even.
     

Hello!

Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Math & Formulas - Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).

After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.

It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):

• Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way. 
• Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case
• Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case
• Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

Feel free to PM me for disccount codes for the guide, and I hope it helps you rock your interviews!