Questions on a profitability case "retirement homes"

Question

Hi, I have some questions regarding this case:

1. This case is only focusing on the solution of increasing profitability. I'm confused about the sentence "The cost side is more important to better understand the profitability issue." Indeed we know that the house in Munich has a slightly higher margin compared to those in Berlin. But how should I decide whether it is more important to discuss ways to increase revenue first, or ways to reduce cost?

2. The recommendations don't look solid. It seems to me that these are solutions that are being "brainstormed". For instance, one recommendation is increasing new revenue stream. How do I know whether this would increase the profitability, since client's main concern is about profit?

3. In a real interview scenario, would these kind of recommendation seem "solid" enough?

Answer 1

Hello,

I will try to address your questions:

The text says that "cost side is more important" just because with the first exhibit you can see that revenues per apartment are much higher in Munichthan in Berlin. That's why the hypothesis can be that the profitability problem is generated by costs
I don't like the recommendation structure neither, but you in general you can always add some "creative solution" that you didn't analyse, proposing them as next steps
I wouldn't suggest to structure the recommendation in that way, but sometimes it can happen that you don't have a clear solution and you have to give your best guess

Hope it helps,
Luca

Answer 2

Hi, that would be an accounting view (investment going to the BS and then depreciating in the IS). But when you look... (read entire answer)

Hi, that would be an accounting view (investment going to the BS and then depreciating in the IS). But when you look at NPVs you just look at cash outlays, e.g. investment in Y... (read entire answer)