Case Interview - Flashcards
Say you had a bulletproof vest manufacturer. Given only this information, what are
weaknesses you can envision for this company?
Starting with weaknesses, the first major one is the uncompromising need for quality. Lives are
on the line if the product fails! Expenses need to accommodate the high cost of testing. Raw
materials need to be carefully monitored to be of the appropriate quality, so its supplier chains
need to be reliable and/or flexible. The threat of potential liabilities is enormous here; an
insurance company will charge a higher premium if it elects to represent this company at all. To
some extent, this item is a commodity, but there will definitely be brand differentiation for the
players who show consistent quality. R&D will need to be expended to maintain a technological
edge for the best vest: maximum usage, lightest, thinnest and weather-resistant. A large portion
of the buyers will comprise a few government contracts. This is good, in that contracts are
usually long-term, which gives certainty to future revenues and inventory needs. However,
governments pick a supplier based on bidding auctions, so there is significant pressure to
present the lowest price.
You are giving the following opportunity. A company wants to sell trees in water. In the
1950s, a smelting plant redirected water flow, which flooded a forest used for timberland.
A logger, who is also a scuba driver, has discovered this and wants to sell the wood. How
would you look at this investment?
This was a real opportunity that this company looked at. It’s easy for interviewers to ask
questions about actual investments they’ve looked at because they know all the answers. Ask if
the product is actually saleable. It is—being 40 feet under water means the wood is not oxizable
and, thus, doesn’t rot. Ask if there is already an industry that does this. There is, and it is
profitable. Ask about all the regular factors that comprise a good investment, including the
experience of management. The interviewing firm passed on this opportunity because the scuba
driver had no industry experience. Management is incredibly important because finance guys
need to rely on current management to turn around the company (relying on equity incentives)
or else hire industry experts.
Hummus Palace sells gourmet hummus throughout New York City. It distributes its tubs
of hummus primarily through two channels: high-end grocery stores and specialty food
retailers. Over the past few years, the company has been experiencing a slowdown in its
sales. What are three potential growth strategies the company could pursue?
To find out why there’s been a slowdown in sales, start with asking questions about the
industry—what is the market size, what are some of the key trends and what does the competitive
landscape look like? Then inquire about the company—what is its growth profile and value
proposition? Is it a scalable business, and does management have the knowledge and experience
to turn the company into a market leader? These questions should provide you with some context
to help you come up with growth strategies for the company. Hummus Palace could grow
through acquisition or organically. It could expand into new product lines (gourmet falafel), new
channels (hummuspalace.com), or new markets (San Francisco).
After debating the merits of each, the interviewer says that the CEO wants to pursue a
geographic expansion strategy. Which market should she expand into?
San Francisco could be an interesting market because of its similarity to New York. San
Francisco has a young urban population that would likely enjoy ethnic foods and be open to
trying new cuisines. The city also would have a large number of high-end grocery stores and
specialty food retailers to sell to.
The CEO thinks that San Francisco is a great idea, but this new operation must break even
in five years. Should Hummus Palace expand into this new market?
Ask questions about the revenue and cost structure. How much will each tub of hummus cost and
how many do they expect to sell? What are the variable and fixed costs? What are the needed
capital expenditures, both maintenance and growth? What are the working capital needs?
Your initial investment is $1.5 million and $100,000 of capex/year over the next five years.
Each tub of hummus costs $2.75 to produce and will be sold for $4.75. You think you can
sell 200,000 plates per year.
Your total fixed costs are $2.0 million ($1.5 million + $100 thousand * 5). The gross margin is
$2 which times the volume sold of 200 thousand is $400 thousand of profit per year. $2
million/$400 thousand neatly breaks even in five years, so yes, you can expand in this market.
