SIX FACTORS OF PROFITABILITY
What do the historical PRICING TRENDS look like for this product?
What is the BRAND POSITIONING of the product in the marketplace (i.e. luxury, discount, etc.)?
Has the company seen it’s COSTS increase to develop this product?
Has the company entered any NEW MARKETS for with this product?
Have there been any NEW ENTRANTS in the market? At which price point?
Has there been any additional REGULATION in the markets?
Have the CHANNELS of distribution changed?
Has the company LOST EXISTING CUSTOMERS?
Have the DEMOGRAPHICS / HABITS of the customers changed?
Have new or existing competitors taken additional MARKET SHARE?
Are there new products that are SUBSTITUTES for this product?
How has the company managed it production CAPACITY?
Have costs along the SUPPLY CHAIN changed?
Have OVERHEAD expenses (i.e. salary, administration, finance, etc.) changed?
Have MARKETING expenses increased?
Have the costs associated with closing a SALE increased?
Have PRODUCTION costs increased?
Have DISTRIBUTION costs increased?
Has the company had any NON-RECURRING / EXTRAORDINARY CHARGES?
Have there been any changes to ACCOUNTING RULES by either the company or FASB
How has the company’s FINANCING COSTS (e.g. interest expense) changed?
When answering profitability-related case study interview question, it is extremely helpful to have a background in financial statement analysis. I began my professional career as an investment banking analyst in the corporate finance department of Morgan Stanley. Consequently, I was extremely comfortable with financial statements and understood how they work. Even though the framework above is an excellent guide, I would also suggest that you either take a financial statement analysis class or pick up a book on financial statement analysis to learn about key financial ratios as well as how the financial statements are interconnected.