rate and po Cor Capture Consulting Offers Case

rate and po Cor Capture Consulting Offers Case Interview Preparation Consulting Math Activities Interview Preparation 2017 1

Agenda of Topics ① Consulting Math Introduction ② Focus of Consulting Math ③ Practice Activities: ① Basic Calculations ② Business Applications ③ Problem Solving ④ Market Sizing/Estimation ④ Wrap-up / Next Steps 2

Capture Consulting Offers 1 Consulting Math Introduction 3

BIG PICTURE: Case Interview Assessment WHERE DOES CONSULTING MATH FIT? ① Integration – Overall Case Approach Theory Real-World Knowledge Analytics Pragmatism Creativity ② Reality: Solve as you would at your job/for a client ③ Structure: Remain structured throughout the interview ④ Logic: Provide criteria or rationale for your conclusions ⑤ Communication: State answer first, then explain AND confidence 4

10 Common Case Solving Mistakes Math is a big one Using a recipe (a predefined approach) Not being MECE (comprehensive, exhaustive) Being bottoms up / a data collector SOLVING MATH INCORRECTLY (EASY MATH OR HARD MATH WITHOUT RECOGNITION) Applying theory too generally Not connecting dots of information throughout the case Making conclusions without basis Standing firm to approach/thinking with new information Not solving the problem asked Sounding as if you are reciting from a case prep book 5

CASE SOLVING APPROACH 1 CASE START (aka, STRUCTURE) SOLVE Math comes in here CONCLUDE NOTE 1: The foundation for the Case Solving Approach is based on “The Case Study Handbook: How to Read, Discuss, and Write Persuasively About Cases” by William Ellet, from Harvard Business Press. NOTE 2: The above reference in NOTE 1 also serves as good reading material for overall case preparation fundamentals. 6

CASE SOLVING APPROACH Drill Down SOLVE Math comes in here 1. Evidence • What evidence do I have that supports the hypothesis? • What additional evidence do I need? • What comes first / what are the biggest impact areas? 2. Analysis • What analysis is needed – qualitative or quantitative • What data can be used or gathered and applied 3. Conclusion/Hypo • From your analysis, express insights and takeaways. thesis Check • Align back to your original hypothesis and confirm/eliminate • Express “interesting!” or “that is important” 3. Alternatives/Acti ons • Define an outcome from the evidence and analysis • Create an interim action/recommendation for that outcome 7

Drill Down: Case Solving 1 Facts of the case / Question(s) to answer Branch of Analysis High Impact Questions H. I. ? Ideas / “Hypothesis” for potential solutions n icase? What is the essence of this s What are the main drivers me influencing this case? o Structure (not listhofcdata/information to collect) re t a M he 4 Branch of analysis • Apply info/bus acumen • Ask ? • Analyze • Synthesize H. I. ? Branch of Analysis • • Hypothesis Structure 3 H. I. ? Branch of Analysis 2 H. I. ? Branch of Analysis H. I. ? 5 Answer Question (s) / Conclusions / Recommendations / Considerations 8

Drill Down: Case Solving What CASE MATH is not What CASE MATH is 9

Example: Solving - Quantitative u You Interviewer u I would like to understand why our competitor is gaining market share in the commercial segment (assume you figured this out through your qualitative questions). u I think looking at a pricing comparison might be a good starting point to see if there is a significant difference. Could I get any data we have about our pricing vs. our major competitor? Interviewer provides: Our commercial cost per case is $2, 125 and our competition is $1, 600. u WOW, that is a major difference! Are the cases the same? Our cases contain 125, 16 oz bags while our competitor’s cases contain 100, 400 gram bags. u Interesting – the quantities and sizes are different. Maybe that is causing some confusion. I’d like to do a calculation to compare the two apples to apples. 10

Example: Solving – Quantitative (cont. ) ① Do the analysis (aka: MATH!) ② Draw Conclusion The customer may not understand the quantity difference given ounces vs. grams. 11

Capture Consulting Offers 2 Focus of Consulting Math 12

MBA specific “formulas” needed for cases Tip: Build your own notes for these. Topics 1. Accounting Formulas/Ratios Relevant to Cases • • Gross, operating, and net profit margin EBITDA Markup Contribution margin Breakeven % change 2. Economics/Marke ting • • Price Elasticity of demand Cross Elasticity of demand 3. Finance • • Valuation multiples Cash vs. Profit Free Cash Flow Payback 4. Strategy • • Market sizing Market share to achieve target profit 5. Other • Rule of 72 • • Growth rate/CAGR Ratios - ROA - ROE - ROI - Current Ratio - Debt ratios Future value/present value NPV Perpetuity/Terminal Value M&A synergies 13

Focus of Consulting Math For the quantitative piece of the case analytics, consulting math can be prepared by focusing on FOUR areas, with increasing levels of complexity. 4 3 2 1 Basic Calculations Business Applications Problem Solving Market Sizing/Estim ation 14

Consulting Math Resources Online courses: Crack The Case Fast Math ($39) Consulting Prep Math Toolkit ($29 -$99 per month) Mconsulting Prep Consulting Math 101 ($39 -$133) Other resources: Consultingcase 101. com – consulting math drills Management Consulting Case Interview Formulas: https: //quizlet. com/57484309/management-consulting-caseinterview-formulas-flash-cards/ Case in Point: Graph Analysis for Consulting and Case Interviews (Marc Cosentino and Mukund Jain, $15. 00) Interview Math: Over 50 Problems and Solutions for Quant Case Interview Questions (Lewis C. Lin, $28. 00) 15

Capture Consulting Offers 3 Practice Activities 16

Instructions/Guidance Work all problems without a calculator or spreadsheet Work in the area provided Focus on short-cuts Be organized in your approach to the calculation Avoid long-hand math Time each page and try to work the following pages with increasing pace It can be valuable to wait for a few days and REWORK the problems, for increased speed and more efficient calculations. 17

1 Practice Activities: Basic Calculations Business Applications Problem Solving Market Sizing/Estimat ion 18

1. Practice: Basic Calculations Time to complete Question 1 Question 2 Question 3 456 + 254 394+548 294+711 19

1. Practice: Basic Calculations Time to complete Question 4 Question 5 Question 6 774 -589 695 -555 441 -430 20

1. Practice: Basic Calculations Time to complete Question 7 Question 8 Question 9 24 X 30 5 X 290 230 X 400 21

1. Practice: Basic Calculations Time to complete Question 10 Question 11 Question 12 255 / 50 824 / 4 472 / 8 22

1. Practice: Basic Calculations Time to complete Question 13 Question 14 Question 15 57 + 45 – 15 X 2 17 – 32 + 36 / (12 -3) 84 / 16/ 4 23

1. Practice: Basic Calculations Question 16 Question 17 Your school won 8 out of 15 A plane flies 1200 miles in 4 hours. games. What was the team’s ratio How many miles does the plane of wins to losses? fly in one hour? Time to complete Question 18 You earn $45 for mowing 3 lawns. If you charge an equal amount for each lawn, what is the amount you earn for 2 lawns. 24

1. Practice: Basic Calculations Time to complete Question 19 Question 20 Question 21 What is 14% of 260 What % of 40 is 15 What is 300% of 11 25

2 Practice Activities: Business Applications Basic Calculations Business Applications Problem Solving Market Sizing/Estimat ion 26

2. Practice: Business Applications Time to complete Question 1 Question 2 Question 3 Six friends agree to evenly split the cost of gasoline on a trip. Each friend paid 37. 27. What was the total cost of the gas. If production line A can produce 12. 5 units in an hour and production line B can produce 15. 25 units in an hour, how long will the production line A have to work to produce the same amount of units as line B. Viola has saved $6, 690. She paid her MBA tuition for one course for $3, 000. What % of her savings remains. 27

2. Practice: Business Applications Question 4 An employees weekly pay was $251. 25. She had deductions of $21. 00 for FICA, $32. 00 for federal income tax, and $20. 00 for medical insurance. What is her net pay? Time to complete Question 5 Question 6 You found an old piggy bank. In it were 4 twenty dollar bills, 7 ones, and 90 pennies. What is the total value of the money in the piggy bank? Jake’s printing business gives customers a set of discounts for bulk purchasing, early payment, and repeat customer. These are 15%, and 5% respectively. On a printing order of $900, what is the net selling price? 28

2. Practice: Business Applications Question 7 The total sales at Max’s Guitar Store were $40, 000. Twenty percent of sales come from guitar supplies. What is the amount collected for guitar supplies. Time to complete Question 8 Question 9 You have $600 in your savings account earning 5% annual interest. After 2 years, what is the amount of interest earned? Chase’s regular time pay rate is $8. 50 per hour. Last week, he was paid for 37 regular time hours and 5 over-time hours at a time and a half over-time rate. What was Chase’s gross pay for the week? 29

2. Practice: Business Applications Time to complete Question 10 Question 11 Question 12 Joe is a collection agent. He recently collected 90% of a debt of $5, 600 and he is paid a 25% commission. What are the net proceeds? Main Street Hardware sells a lot of paint. On a recent Saturday, they sold the following quantities in fractions of gallons: 1/4, 1/2, 3/4, 5/8, and 3/10 How many total gallons were sold (not in fractions, in decimals). Cindy’s Gift Shop purchased 8 -inch candles for $9. 95 a dozen, less a 25% discount. If they wish to see at a 35% markup, what should be the selling price of each dozen? 30

2. Practice: Business Applications Question 13 Ron visited Costco and bought several items. 2 radial tires at $50. 00 each and 2 seat cushions at $17. 00 each. What was the total purchase price and the average price per item? Time to complete Question 14 Question 15 At the end of the golf season, Wayne purchased golf shoes, originally prices at $50. 000 with a 25% discount. Aaron purchased tennis shoes, originally priced at $55 with a 30% discount. The sales tax was 8%. What was the total amount of the two purchases. The Happy Grocer market noticed a recent decrease in produce sales. They think they should discontinue their produce department when sales were below 20% of total sales. For the next month, sales were $11, 420, of which, produce sales were $2, 150. What is the ratio of produce sales to total sales as a %? 31

3 Practice Activities: Problem Solving Basic Calculations Business Applications Problem Solving Market Sizing/Estimat ion 32

3. Practice: Problem Solving Time to complete Question 1 High-Tech Electronics wants to expand into video games. To conduct a survey of the market potential, they have hired a marketing consultant at $45/per hour for 10 hours, plus $10 for each of 125 survey participants. High-Tech also buys warehouse space measuring 16 feet by 20 feet at a cost of $12 per square foot. If other expenses for the expansion total $7, 500, what is High-Tech’s total expansion cost? 33

3. Practice: Problem Solving Time to complete Question 2 High-Tech Electronics is continuing to evaluate expanding its business into video games. They have the following information about their new facility: Building costs: • Land - $100, 000 • Survey - $5, 600 • Construction – 25 ft X 40 ft at $20/sq ft Architect’s fees – 7. 5% of construction cost Legal fees - $10, 000 1. 2. 3. What are the total building costs? What is the architect’s fee? What is the total cost of the expansion? 34

3. Practice: Problem Solving Time to complete Question 3 Hitz Music estimated revenues to reach $950, 000 last year. It expected to earn 82% from CDs, 12 % from merchandise, and 6% from cassettes. Actual figures showed $780, 000 from CDs, $110, 000 from merchandise, and $55, 000 from cassettes. In which areas did Hitz Music go over budget? 35

3. Practice: Problem Solving Time to complete Question 4 Best Ways Travel wanted to reach $5, 000 in revenues last year. It expected to earn 80% of that from sales, 10% from services, and 10% from investments. The budget analysis at the end of last year showed actual revenues of $3, 950, 000, $425, 000 from services, and $650, 000 from investments. Did Best Ways meet its revenue goal? 36

3. Practice: Problem Solving Time to complete Question 5 Maroon Corporation’s net income last year was $1, 800, 000. The dividend on common stock was $3. 00 per share and the dividend on preferred stock was $1. 00 per share. The market price of common stock at yearend was $50. 00 per share. Throughout the year, 300, 000 shares of common stock and 200, 000 shares of preferred stock were outstanding. Compute EPS per common share, the price-earnings ratio, and the dividend payout ratio. 37

3. Practice: Problem Solving Time to complete Question 6 Gargoyle Industries net cash from operating activities was $169, 000, its net income was $161, 000, capital expenditures were $95, 000, and cash dividends were $42, 000. What was the company’s free cash flow? 38

3. Practice: Problem Solving Time to complete Question 7 Jump Corp is considering a project with a ten-year life and requires a $1, 000 investment in equipment. The expected annual net operating income for the project is as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $2, 000 1, 400, 000 600, 000 400, 000 $ 200, 000 What is the projects payback period and simple rate of return? 39

3. Practice: Problem Solving Time to complete Question 8 Star Rocket Industries has a customer who has asked them to supply 4, 000 units of product Super. Wow, with some modifications, for $40 each. The normal selling price of this product is $48. 00. The normal unit product cost of Super. Wow is as follows: Direct materials Direct labor Variable manufacturing OH Fixed manufacturing OH Unit product cost - Total $18. 50 1. 20 8. 40 3. 90 $32. 00 Direct labor is a variable cost. The special order has no impact on the fixed manuf. OH. The customer would like small modifications that would increase the variable cost by $5. 70 per unit and requires a one-time investment of $31, 000 for special molds. There is no impact on the other sales of Star Rocket. There is ample capacity. What is the impact to Star Rocket’s net operating income? 40

3. Practice: Problem Solving Time to complete Question 9 Magnus Logistics is a division of a major corporation. Last year the division had total sales of $12, 450, 000, net operating income of $1, 357, 050, and average operating assets of $3, 000. The company's minimum required rate of return is 10%. What is the division’s margin, asset turnover, and return on investment? 41

3. Practice: Problem Solving Time to complete Question 10 Dinojoyous Corporation has two major business segments-Apparel and Accessories. There December results appear below. Sales revenues-Apprel Sales revenues-Accessories Variable exp-Apparel Variable exp-Accessories Traceable fixed exp-Apparel Traceable fixed exp-Accessories $870, 000 820, 000 426, 000 344, 000 148, 000 156, 000 Common fixed expenses totaled $314, 000 and were allocated as follows: $129, 000 to the Apparel business segment and $185, 000 to the Accessories business segment. What is the segment margin of Apparel compared to Accessories? 42

3. Practice: Problem Solving Time to complete Question 11 Bristol Cars is a small, luxury car maker in the U. K. One of their dealers is evaluating their business. On average, the Bristol Bullet sells for $250, 000, which are purchased from the company for $200, 000. Each month, the dealer pays $60, 000 in rent and utilities, and $70, 000 for sales personnel salaries. Also, sales people are paid a commission of $2, 500 for each car sold. The dealer spends $10, 000 each month for sales events and customer support. The tax rate is 40% What is the breakeven # of cars the dealer must sell each month? 43

3. Practice: Problem Solving Time to complete Question 12 Teddy Bear Daycare provides daycare for children Monday-Friday. Its monthly costs are as follows: Variable costs/per child: Lunch/snacks Educational supplies Other supplies Total $100 75 25 $200 Fixed costs per month: Rent Utilities+insurance Salaries+misc. Total $2, 000 600 3, 000 $5, 600 Teddy Bear charges each parent $800 per child (per month). Teddy Bear desires to have a monthly target net income of $10, 400. Recently, they lost their lease and the new building rent will be $1, 000 more than currently. Also, Teddy Bear plans to start doing field trips, which will cost $1, 000 per month. How much should Teddy Bear increase the monthly per child charge, assuming the same # of breakeven children as the current cost structure? 44

4 Practice Activities: Market Sizing/Estimation Basic Calculations Business Applications Problem Solving Market Sizing/Estim ation 45

Approach to solving Market Sizing/Estimation ? ’s Step 1 2 Approach Clarify • The metric – Quantity or dollar value • Attributes of object/service/product/thing trying to solve for • Scope – new/used, narrow/wide Break down the problem 1. What is your drill down approach – decision tree, layers 2. What groups can you define 3. What estimates do you need to make vs. facts to gather 4. What is the bottom-line # you are working towards The focus is to be MECE (Mutually exclusive and collectively exhaustive) 3 Gather data and make assumptions • Population of country/location – you should know/estimate this? • % breakdown of groupings – you should estimate/make a reasonable assumption • For key facts, you should decide what you need to ask for – clarify and gather data 46

Illustration: Market Sizing/Estimation Question # of tires sold in Canada each year Step 1 Approach Clarify • The metric – Quantity or dollar value • Type of vehicle – Automobile, trucks, motorcycles, bicycles, airplanes, tractors, etc • New vehicles and/or replacements Break down the problem 2 3 How to solve this problem: 1. How many cars are there? 2. What is the new vs. used car tire need 3. What is the replacement frequency of cars and tires on used cars Gather data/make assumptions • Population of country/location • # of cars • # of new vs. used cars • Years to replace car, years to replace tires • # of tires per car 47

Illustration: Market Sizing/Estimation Question # of tires sold in Canada each year Step Solution Calculate: 1 -3 4 Answer/Summarize: 48

Keys for Market Sizing/Estimate ① Structure Population Group 1 A% of Group 1 Yes % B% of Group 1 Group 2 A% of Group 2 B% of Group 2 No % ② Right ballpark ③ Accurate math, done simply ④ Reasonable end result ⑤ End result that matches the question 49

4. Practice: Market Sizing/Est. Time to complete Question 1 Size the of the disposal diaper market in the United States? Calculate # of diapers used per year. 50

4. Practice: Market Sizing/Est. Time to complete Question 2 # of movie tickets sold each year in the United States. 51

4. Practice: Market Sizing/Est. Time to complete Question 3 # of light bulbs sold each year in Australia? 52

4. Practice: Market Sizing/Est. Time to complete Question 4 # of coffee pods consumed each month? 53

4. Practice: Market Sizing/Est. Time to complete Question 5 # of potential hotel rooms to be constructed in Cuba? 54

4. Practice: Market Sizing/Est. Time to complete Question 6 # of gallons of white house paint sold in the United States each year? 55

4. Practice: Market Sizing/Est. Time to complete Question 7 The total square feet of pizza consumed in the United States each month? 56

4. Practice: Market Sizing/Est. Time to complete Question 8 How many band-aids are used each year (quantity)? 57

4. Practice: Market Sizing/Est. Time to complete Question 9 How many pianos are sold each year in the United States? 58

4. Practice: Market Sizing/Est. Time to complete Question 10 How many baseball caps are purchased each year for Major League Baseball teams (worn by players)? 59

Capture Consulting Offers 4 Wrap-up / Next Steps 60

Remember: Your End Goal 61

Capture Consulting Offers Presented by: Pam Schilling www. archcareerpartners. com