Frameworks

Question 1

What is the PROFITABILITY framework and when to apply it?

Answer 1

• revenue - cost = profit (write down)
• apply when encountering e.g. slow growth, declining profitability, or decreasing margins
• inquire about revenue and volume when given a case about growth, sales, or prices
• costs are normally categorised as fixed or variable, but sometimes overlap (e.g. labor, utilities)
• discern whether company is focused on rapid growth (younger) or steady value (older)

Question 2

When to apply the INTERNAL/EXTERNAL framework?

Answer 2

• mergers & acquisition
• divestiture strategy
• company restructuring
• new product development/launch
• market expansion into new geographies
• supply chain optimisation
• building new facilities
• competitive advantage
• government/regulatory environment changes