How do we calculate that it makes the 40% of the profit?

Question

The work boot market with its higher margin of 22% is responsible for approximately 40% of Duraflex’s profits, making it very difficult to profitably ignore this market

How do we come to that number? 340 mio total and 300 mio from working boots. Am I missing something?

Answer 1

Hi Jasmine,

Ironically, both you and the case are wrong.

Work boots are 60% of their profits, not 40%

Casual boots are 40%.

It states Duraflex generates €414 m (Revenue) from work boots and €410 m from casual boots.

Exhibit 7 shows that the margin for work boots is 22% and for casual boots it's 15%.

That means profit for work boots are $91M

Profits for casual boots is $61.5M

That means work boots represent 60% of the profits…$91M divided by ($91M + $61.5M)

If you look further down the case, you'll see that the line you quoted was basically a type-o (super common with cases!) and they say the correct split here:

Answer 2

Hi Jasmine,

I would be happy to share my thoughts on it:

It appears that both you and the information in the case study have made an error.
Based on the revenues of €414m and €410m and profit margins of 20% and 15%, respectively, work boots generate €83m in profits and casual boots generate €62m in profits, resulting in a profit share of 57% for work boots.

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