Calculation of Change in Profitability

Question

I have just been through this case in a meeting as an interviewer, but both me and my interviewee came up with different numbers for the changes in profitability. Is this a mistake of the numbers in the case, the formula (changes in profitability = changes in sales * profit margin) or our understanding of profit margin and calculation of profitability?

E.g, for seatbelts, if the profit margin is 50 %, and the change in sales is - $90 Mio, shouldn't the change in profitability be $-90 Mio*0,5 = -$45 Mio of this, and not -$23 Mio?

Thank you for your help :)

Answer 1

Hi Benedikt,

You are correct! My apologies, the case will be updated shortly :)

In summary:

1) Seatbelt change in profitability is indeed -$45M

2) Total projected change in profitability is -$43M

Apologies for the confusion!

Answer 2

Hi there, Seconding the others coaches here: You are just listing words. Consultants don't list words. They think and... (read entire answer)

Hi there, Seconding the others coaches here: You are just listing words. Consultants don't list words. They think and break down a problem systematically. PLEASE read this artic... (read entire answer)

Answer 3

Please do NOT do REVENUE - COST. That is not a framework and is super generic. I appreciate you saying “seemed like... (read entire answer)

Please do NOT do REVENUE - COST. That is not a framework and is super generic. I appreciate you saying “seemed like a simple profitability case” as this is a misnomer! Every p... (read entire answer)

Answer 4

I'm not sure what connections you are trying to draw here. Can you give us more details into your question pls? Updat... (read entire answer)

I'm not sure what connections you are trying to draw here. Can you give us more details into your question pls? Update based on comment by OP: In a so-called profitability case,... (read entire answer)