Our client thinks her company has a debt problem. How would you approach this problem?

Cases Corporate Finance debt ratio
New answer on Apr 30, 2020
2 Answers
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Anonymous A asked on Apr 10, 2020

Hello!

I was asked this question in an interviewer-led and I wasn't able to come up with any structured framework: "Our client thinks her company has a debt problem. How would you approach this problem?"


Some aspects I would consider:

1. Long Term Financial Debt:
a) relative value (compared to Revenues, Profits, Equity)
b) average length
2. Short Term Financial Debt:
a) relative value (compared to Revenues, Profits, Equity)
b) average length - not really useful
3. Net Working Capital
a) NWC days
b) NWC on revenues


Is this an acceptable answer? What would you add/cut?

Thank you so much!

Best, Anonymous

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Clara
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replied on Apr 10, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Overall agree with what you layed out.

I would try to deep dive on WHY they key that they may have a debt problem. Finding the root causes of that suspicion will give you a lot of hints.

In order to do so, you can ask:

  • Historic data > any changes in both of the debts you have mentioned before
  • Benchmark against competitors, do we have any?

Hope it helps!

Cheers,

Clara

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Antonello
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replied on Apr 30, 2020
McKinsey | MBA professor for consulting interviews
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Clara

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