Hi!
What you outline is not a “Profitability Analysis”, but an investment analysis! This is very important to understand! The costs of entering are not part of “Profitability”. These are Investments. And Investments need to be recouped by operational profits. So what you need to assess is whether:
[Additional Operational Profit per year] x [Investment Horizon (in years)] > [Initial Investment + ROI requirement]
A “Profitability Analysis” only quantifies the first element of this inequality, but for a solid go or no-go decision, you must quantify all elements.
That being said you are of course right with your underlying thought - the investment might very well depend on the mode of entry! If there are different options and there is information on different investments and operational returns, then indeed you need to run the analysis fopr both scenarios and then pick thebest. But tobe honest - itis extremely unlikely that you will actually do this in a 25-30 minutes case interview. Just discussing this logic clearly and concisely would be enough (at least talking about MBB). And then you would probably need to do a very limited analysis on one specific aspect. These case studies are meant to check on your principal logic, your abilitiy to communicate this logic, and your ability to conduct some basic analytical steps from data provided. That's it. Not hard in principle, but still most candidates fail in this because they have a wrong understanding of what they even need to show in these interviews…
Cheers, Sidi
(edited)
Hello, This seems to be a great and realistic answer but in most of the cases we don’t get this kind of information from the beginning (amount of the investment, target ROI). In most of the cases that I have seen they indicate that the client’s objective is to increase profitability should he enter the market or not, or something like the target is to increase sales should we launch the product or not? Should we start the case by asking specific questions regarding the investment, current sales etc and after we have them we move on to a framework to assess weather the number is feasible or not? Thanks,