Standard Profitability Framework

Question 1

Questions to Start

Answer 1

1. Specifics about product, value chain, and how they earn money 2. Targets and restrictions? 3. Industry trends, new entrants?

Question 2

Brainstorming structure potential categories

Answer 2

FEEIOP:

• Financial
• Economic
• External
• Internal
• Operational
  Political

Question 3

Risks - go to categories

Answer 3

LOORP:

• Legal
• Operational
• Opportunity Costs
• Reputation
• Political

Question 4

External branch

Answer 4

CRMMT:

• Competition –> New entrants, industry leaders and why?
• Regulation
• Macro
• Market size change
• Trends in preferences

Question 5

Capabilities Branch

Answer 5

BLRC:

• Brand / Marketing and reputation
• Locations
• R+D
• Core competencies

Question 6

Fixed Costs branch

Answer 6

Labor:

• Employee Mix and Specialization Level
• # of Employees
• Avg Compensation / Employee

–> Unionization, Skill Level, Productivity

PPE

SGA

Question 7

Revenue branch

Answer 7

Product/Service Mix
Customer Mix
# of units or # of customers/period –> market share
$/unit or average revenue/customer –> price

Question 8

Profitability Equation

Answer 8

(MP*Q) - FC

Question 9

Questions asking about growth are looking for:

Answer 9

Only refers to REVENUE, not costs or profit

Question 10

“Growth” means:

Answer 10

Revenues only

Question 11

Ways to enter a market

Answer 11

1. Develop in-house
2. Joint Venture
3. M&A

Question 12

When you hear “What’s the opportunity?” it means

Answer 12

Find the market size –> design the structure