Case Studies Flashcards
Build a toolkit of equations and frameworks for use in case studies
Contribution Margin
Definition and formula
Contribution Margin = price - variable cost
How much each product sold brings into the company after accounting for the cost of raw materials
Return on Investment
Definition and equation
ROI = (net profit, or revenue - cost)/investment cost
How much additional $ the company generates relative to its initial investment
Market Share
Equation
Market share (%) = company revenue/total market revenue
Relative Market Share
Definition and equation
Relative Market Share = company revenue/largest competitor’s revenue
OR
= company market share/largest competitor’s market share
Gross Profit
Definition and equation
Gross Profit = revenue - cost of goods sold
How much $ a company makes from selling its product after taking into account COGs
Operating Profit
Equation
Operating Profit = gross profit - operating expenses
Compounded Annual Growth Rate
Definition and equation
Compounded Annnual Growth Rate (CAGR) = ((ending value/beginning value)^(1/time period))-1
How quickly something is growing year after year
Rule of 72
Definition and equation
Rule of 72 = 72/annual growth rate
Shortcut used to estimate how long a market, company or investment would take to double in size (number calculated is in years)
Price Elasticity of Demand
Equation
PED = % change in quantity/%change in price
Percentage Increase
Equation
% Increase = (final value - initial value)/initial value
Percentage Decrease
Equation
Percentage Decrease = (initial value - final value)/initial value
What percentage one number is of another
How to calculate
Consider two numbers 30 and 45. Let us calculate what percentage is 30 out of 45. For this, we divide the part (30) by the whole (45) and multiply the result by 100. This gives 30/45 × 100 = 66.67%.
Multiplying Decimals
How to calculate
Ignore the Decimal Point (Initially):
Multiply the numbers as if they were whole numbers.
Example: 3.2 x 2.5 = 32 x 25 = 800
2. Count the Decimal Places:
Count the total number of decimal places in both numbers.
Example: 3.2 has 1 decimal place, and 2.5 has 1 decimal place, so there are a total of 2 decimal places.
3. Place the Decimal Point:
In the product (the answer), count from right to left the same number of places as the total from step 2.
Example: 800 becomes 8.00, which is simply 8.
4. Double-Check:
Use estimation to verify your answer.
Example: 3.2 is close to 3, and 2.5 is close to 3. 3 x 3 = 9, so the answer should be close to 9.
K* K = ?
M
M * K = ?
B
M/K = ?
K
B/M = ?
K
B/K = ?
M
38% of 50 is equivalent to…?
50% of 38
Total Variable Cost
Equation
TVC = quantity * variable cost
Full Profit Formula
Profit = (price - variable cost) * quantity - total fixed cost
Profit Margin
Definition and equation
Profit Margin = Profit/Revenue
How much earnings a business keeps relative to its revenue
Payback Period
Definition and equation
Payback period = investment cost/profit per year
The time required to recoup the funds expended in an investment, or to reach the break-even point
Output
Equation
Output = rate * time
