Screwed up calculation on McKinsey 1st round

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When preparing for case interviews, ROI and ROAS are two concepts you'll encounter repeatedly. Both are key metrics that enable you to evaluate a company's success and measure the efficiency of investments.🔎 In this article, you’ll learn how to correctly apply ROI and ROAS in your case analyses and how to structure your answers clearly. What is ROI, and why is it important for case interviews?Return on Investment (ROI) measures how much profit a company generates relative to its investments. This metric helps you assess whether an investment was worthwhile. In a case interview, ROI is particularly useful for evaluating the efficiency of a proposed strategy or project.💡 Pro tip: A positive ROI means the company is earning more than it has invested, indicating a profit. A negative ROI points to losses.How to calculate ROI:Example: If a company invests €100,000 and earns €120,000, the ROI is 20%. This means the company has achieved a 20% profit on its investment.👉 Practice with our cases that query ROI – such as topics like new product, market entry, or capacity changes. ROAS: Why you need it in marketing casesReturn on Advertising Spend (ROAS) is a specific metric that plays a key role, especially in marketing cases. It shows how efficiently advertising expenses are converted into revenue. Simply put, ROAS helps you evaluate the success of marketing campaigns.How to calculate ROAS:Example: If a company spends €10,000 on advertising and generates €50,000 in revenue, the ROAS is 5, which means the company received five euros back for every euro invested.💡 Pro tip: A ROAS of 5 or higher is generally considered a good value. However, in case interviews, you should always inquire whether this figure is sufficient to cover costs and achieve long-term goals.👉 Look at cases related to competitive responses or growth strategies. Key application areas for ROI and ROASROI and ROAS are used in many areas, especially in the analysis of investments and marketing measures. Here are some important application areas:Online marketing: Companies use ROAS and ROI to measure the success of digital advertising campaigns like Google Ads and Facebook Ads.E-Commerce: ROI and ROAS are employed to assess the effectiveness of online sales strategies like pay-per-click advertising or social media marketing.Investments: Investors and companies use ROI to calculate the profitability of investments in stocks, real estate, and projects.Product development: ROI is used to evaluate the success of new product launches and the associated investments.Sales: Companies analyze ROI to monitor and adjust their sales strategies.Customer acquisition: ROAS and ROI play an important role in measuring the effectiveness of customer acquisition and retention strategies. Why are ROI and ROAS so important in case interviews?In most case interviews, you are expected to assess financial or operational decisions. Specific metrics like ROI or ROAS are often used to determine how efficient a measure is. Both metrics indicate how well a company utilizes its resources – whether in advertising or investments.This means you need to be able to not only calculate ROI and ROAS, but also contextualize them correctly. You must understand when a number is good or bad and which additional factors to consider, such as market trends, customer goals, or competitive conditions.💡 Pro tip: When interpreting ROI and ROAS, it’s essential to understand the specific case. In consulting, there is no "one-size-fits-all" solution. You should always tailor the framework to the respective client and situation.👉 Deepen your knowledge of financial metrics with our Mental Math Tool and find additional cases that help you analyze ROI and ROAS confidently. Key TakeawaysROI and ROAS are key metrics in many case interviews. They help you evaluate the efficiency of investments and advertising measures.ROI indicates how well an investment has performed. A positive ROI signals profit, while a negative ROI indicates loss.ROAS measures the effectiveness of advertising spending. A high ROAS shows that advertising efforts were successful.Context is everything: Tailor your analysis to the specific needs and goals of the company to provide meaningful recommendations.Practice makes perfect: Prepare for cases with financial or marketing-related tasks to get comfortable using these metrics.