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Use P&L as a structure for a Profitability Case

Anonymous A asked on Aug 23, 2018

Wondering what your thoughts are on structuring your profitabiltiy case along your financial statements (P&L at first and then evaluating the effects on others). I would intuitevly analyse the positons and then go from there to dig deeper for the root causes.

Any experiences?

Cheers

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Egor
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replied on Aug 24, 2018
McKinsey/Actionable feedback/Harvard University/Warwick Business School
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That’s a good and important question. I am glad you asked.

People with finance background normally do this. This is definitely one of the most useful approaches to profitability cases. However, interviewer in 90% cases gives you a synthesis from financial statements e.g. revenue is decreasing/stagnating, costs steadily increase last 5 years.

You should take into acoount that you still structure case as revenue and costs. And then you can use different options for deep-dives in costs:

  1. Divide between variable and fixed
  2. Divide costs according to income statement (your suggestion)
  3. Divide costs according to value chain

Revenue may be divided into the classification from cash flow statement. But it is not typical for cases, as it heavily depends on a client business.

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