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.
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.”
(edited)
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:
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
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
Hello!
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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.