Is there any way I can reduce investment? If I negotiate a new deal with a bank, the cost of my debt is capex or opex?

1st round Bain BCG Mck needed partner RolandBerger
New answer on Sep 29, 2020
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Anonymous A asked on Sep 06, 2020

It's not clear if there is any way I can reduce capex/networking capital to increase Roic. If I negotiate a new deal with a different bank the cost of my debt is capex or opex? If I do that, capex will stay the same or not? Thanks!

(edited)

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Vlad
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updated an answer on Sep 07, 2020
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

If you get the cheaper debt to finance CAPEX, you will decrease interest expenses, however the CAPEX will stay the same. If you reduce your interest expenses - you'll obviously have more cash that you can use as a networking capital

Best

(edited)

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Sidi
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replied on Sep 06, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi!

It seems you are mixing up a lot of things here (capex vs. cost of capital vs opex vs. debt etc.). I believe it is almost impossible to answer your question in a succinct way, since you seem to still need to understand the basic principles of accounting. Maybe have a short look at the below article, this should clear up the basics I hope. Sorry for the short answer, but disentangling the problematic premises of your question would mean a huge amount of text. Hope it still helps.

Cheers, Sidi

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AccPrimer/accstate.htm

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Anonymous replied on Sep 29, 2020

Hi A,

What case are you talking about?

Could you please attach it for more clarity?

Best,

André

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Clara
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replied on Sep 09, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello,

Could you paste the case this relates to? Im curious to see the application.

For the definitions, +1 to what my colleagues commented.

Cheers,

Clara

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Ian
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replied on Sep 08, 2020
BCG | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi,

I agree with the others, you need to review some basic accounting!

Capex is the $ spent to build/acquire + maintain assets

Opex is the ongoing cost of running a product, business, or system

Interest rates on loans are essentially your cost of capital, and have intrinsic annual costs.

Furthemore, the way in which you reduce capex and opex totally depends on the industry and firm in question! We could close a few factories, renegotiate with suppliers, cut our labor force, pay out people less, etc. etc. (there are almost infinite options). We require much more context.

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Vlad gave the best answer

Vlad

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McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School
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