Explanation of Breakeven Analysis

Question

Hello,

Will someone please explain to me how NWC and Cumulative BCF are being calculated in the initial break-even analysis? I don't understand how the 20% of sales NWC is being accounted for each year and how that is being factored into the calculation.

Answer 1

Hi there,

Actually, this questions was already asked in German here!

https://www.preplounge.com/en/consulting-forum/nwc-15084

Here's the translation from coach Hagen:

“The NWC for building up the opening stock is EUR 320 million. Furthermore, it is shown that the NWC is always 20% of the turnover. So if there is a turnover of EUR 2,000 million in 2025, 20% of this is EUR 400 million. Since the change in the NWC is calculated by taking the old value and subtracting the new one from it, i.e. EUR 320 million - EUR 400 million, you arrive at a EUR -80 million change in the NWC.”

Answer 2

Hi Michael,

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

First of all, given the number of questions both from you and other candidates, I feel the case study might lack clarity. As such, I would advise you not to worry too much about those rather complicated and unintuitive calculations.
Moreover, in addition to what I answered in this thread, given that NWC is 20% of sales, if sales from 2025 to 2026 to 2027 will increase by approximately $400m, the change in NWC will be 20% of this, i.e., -$80m.

If you would like a more detailed discussion on how to address your specific situation, please don't hesitate to contact me directly.

Best,

Hagen

Answer 3

Hi there,

FYI - the level of complexity here is higher than what you can expect in the average interview. Just so you don't assume that all interviews will be like that.

Best,
Cristian

Answer 4

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 “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

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