# Explanation of Breakeven Analysis

Neue Antwort am 19. März 2023
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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.

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Hi there,

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.”

(editiert)

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Hi Ian, Thanks for clarifying. There are still a few things I don't understand about the case. I might be missing a key assumption. If the change in net working capital is defined as [NWC of last fiscal year] - [NWC of the current fiscal year]. Why is NWC for 2026 and 2027 -80? If NWC from 2015 is -80 and NWC of 2026 is 20% of 2,402, then why isn't NWC for 2026 = -80 - 480 = -560? How should I be interpreting the fact that NWC per year is 20% of sales? Also if the initial investment is 320M + 100M = 420M how does the sum of EBITDA for the first 3 years of operation equivalent to 360M cover the 420M initial investment? Am I supposed to be using NWC as a current asset against the initial investment? Please help me understand the trends in NWC and why it's subtracted against EBITDA to determine business cash flow. I thought NWC was already accounted for in COGS + OH. Thank you for your time.

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

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