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Calculation of Change in Profitability

Hot Wheels profitability analysis
New answer on May 19, 2020
1 Answer
2.5 k Views
Benedikt asked on May 19, 2020

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 :)

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Ian
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replied on May 19, 2020
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

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!

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Ian

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