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McKinsey

Problem Solving Test
Business Terms:
Absolute Values, Ratios, Exhibits

© 2016-2017 Flessibilità, Victor Rogulenko. All Rights Reserved

Table of Contents
1. ABSOLUTE VALUES ............................................................................................................................... 4

REVENUE .................................................................................................................................................... 4
SALES VOLUME VS SALES REVENUE ...................................................................................................................... 4
FORMULAE: ...................................................................................................................................................... 4
COSTS ........................................................................................................................................................ 5
VARIABLE VS FIXED COSTS.................................................................................................................................. 5
COST OF GOODS SOLD VS OVERHEAD .................................................................................................................. 5
FORMULAE: ...................................................................................................................................................... 6
PROFIT ....................................................................................................................................................... 6
AVERAGE PROFIT .............................................................................................................................................. 7
GROSS VS OPERATING PROFIT ............................................................................................................................ 7
EBIT / EBITDA ............................................................................................................................................... 7
BREAKING EVEN ................................................................................................................................................ 7
PAYING BACK ................................................................................................................................................... 7
FORMULAE ....................................................................................................................................................... 8

2. RATIOS / SHARES ................................................................................................................................ 9

MARKET SHARE ............................................................................................................................................ 9
FORMULAE ....................................................................................................................................................... 9
PROFIT MARGIN ........................................................................................................................................... 9
FORMULAE ..................................................................................................................................................... 10
MARKUP ................................................................................................................................................... 10
FORMULAE ..................................................................................................................................................... 10
CONTRIBUTION MARGIN ............................................................................................................................. 10
FORMULAE ..................................................................................................................................................... 11
EFFICIENCY ............................................................................................................................................... 11
AVERAGE EFFICIENCY OF X SUBJECTS ................................................................................................................ 11
PRODUCTIVITY AND RETURN ON INVESTMENT ..................................................................................................... 11
FORMULAE ..................................................................................................................................................... 12
GROWTH RATE .......................................................................................................................................... 12
COMPOUND GROWTH ...................................................................................................................................... 12
CHURN .......................................................................................................................................................... 12
FORMULAE ..................................................................................................................................................... 13

3. EXHIBITS ............................................................................................................................................ 14

ABSOLUTE VALUES ..................................................................................................................................... 14
WATERFALL ............................................................................................................................................... 15
SHARES – PIE CHARTS ................................................................................................................................ 16
SHARES – TWO-DIMENSIONAL ...................................................................................................................... 16

© 2016-2017 Flessibilità, Victor Rogulenko. All Rights Reserved 2

................................................. 17 INDEX .......................................................................................................................................................................................................................................................................................... Victor Rogulenko.............................. 20 VALUE CHANNEL / FUNNEL ............................................................................. 20 PERCENTILE / DECILE / QUINTILE / QUARTILE ................................................................................................................................ All Rights Reserved 3 ................................................................................... 18 DEVIATION FROM AVERAGE .................................. 17 CUMULATIVE VALUES .....................CHANGE................................................................................................ 19 MIXED (PERCENT AND ABSOLUTE VALUES) ............ 21 © 2016-2017 Flessibilità........................................................

year. day. kg/lbs. if the company sells N products or services (3) Revenue = MarketSize x MarketShare. week. if the company is present in one market (выручка = размер рынка x доля рынка) (4) Revenue = Revenue1 + Revenue2 + … + RevenueM = MarketSize1 x MarketShare1 + MarketSize2 x MarketShare2 + … + © 2016-2017 Flessibilità. Absolute Values Revenue (выручка) = total money paid by customers to the company for products or services in a given period (e. etc. if the company sells one product or service (выручка = цена x количество) (2) Revenue = Revenue1 + Revenue2 + … + RevenueN = Price1 x Quantity1 + Price2 x Quantity2 + … + PriceN x QuantityN.) • Sales Volume = Quantity of goods sold (in physical units. All Rights Reserved 4 . Victor Rogulenko. gigabytes. etc. euros. pounds.). etc. Synonyms: • Sales (продажи). month.) (количество проданных товаров) Formulae: (1) Revenue = Price x Quantity of goods sold.g. • Sales revenue (выручка от продажи) Sales Volume vs Sales Revenue (Продажи в физических единицах и продажи в деньгах) • Sales Revenue = Revenue (in money terms – dollars.1.

(накладные расходы) Synonym: indirect costs (косвенные расходы). etc.g. if the company is present in M markets Costs (издержки) = total money paid by the company to produce goods / services in a given period (e. Synonym: expenses (затраты) Variable vs Fixed Costs (Переменные и постоянные издержки) • Fixed Costs = Costs that are "fixed" and do not increase even as sales increase moderately (example: salaries of top management. © 2016-2017 Flessibilità. MarketSizeM x MarketShareM. including freight or shipping charges. day. suppliers and vendors. direct labor costs for workers who produce the products.). (себестоимость реализованной продукции) Synonym: direct costs (прямые расходы). rent) • Variable Costs = Costs that "vary" proportionally with the number of items sold by the company (example: raw materials. Cost of Goods Sold vs Overhead (себестоимость реализованной продукции и накладные расходы) • Cost of Goods Sold = Materials and labor costs directly attributed to the goods produced for sale. Includes payment to employees. year. week. All Rights Reserved 5 . Often (but not always) it’s the same thing as Fixed Costs.Examples: the cost of products or raw materials. the cost of storing products the business sells. month. and depreciation • Overhead Costs= Costs NOT directly attributed to the goods produced for sale. Victor Rogulenko. taxes. . etc. Often (but not always) it’s the same thing as Variable Costs. manufacturing labor costs).

etc. legal fees. repairs. . labor burden. week.) = Revenue – Costs (выручка за вычетом издержек) Synonyms: • income (здесь: прибыль). taxes. © 2016-2017 Flessibilità. advertising. supplies. • earnings (чистая прибыль).Examples: accounting fees. and utilities • Operating Expenses = Overhead costs excluding taxes and interest expenses (операционные расходы = накладные расходы без учета налогов и процентов по кредитам) Formulae: (5) Costs = Fixed Costs + Variable Costs = Fixed Costs + (Variable Costs per Unit) x Quantity (затраты = постоянные затраты + переменные затраты на единицу х количество единиц) (6) Costs = Cost of Goods Sold + Overhead Costs = Cost of Goods Sold + Operating Expenses + Taxes + Interest Expenses (затраты = себестоимость + накладные расходы = себестоимость + операционные расходы + налоги + выплата процентов по кредитам) Profit (прибыль) = total money earned by business LESS its expenses in a given period (e. • net income (чистая прибыль). A negative profit is called a Loss. telephone bills. year. day. insurance. Victor Rogulenko. month. All Rights Reserved 6 . travel expenditures. rent. • profit earnings (чистая прибыль).g. interest.

Profit = 0. выплаты процентов. The former is what customers pay the company. Average Profit = Total Profit / Quantity (number of units) (средняя прибыль на единицу продукции = общая прибыль / количество единиц) Gross vs Operating Profit (валовая и операционная прибыль) • Gross Profit = Revenue – Cost of Goods Sold • Operating Profit = Gross Profit – Operating Expenses EBIT / EBITDA (EBIT = чистая прибыль до налогов и процентов. Paying Back (окупаемость) © 2016-2017 Flessibilità. All Rights Reserved 7 . Victor Rogulenko. Taxes. and Amortization = EBIT + Depreciation and Amortization Breaking Even (выход на безубыточность. и учета амортизации) • EBIT = Earnings before Interest and Taxes = Operating Profit • EBITDA = Earnings before Interest. EBITDA = чистая прибыль до налогов. or. the latter is what remains after customers pay the company AND all the company's bills are paid. and one has “broken even” = value of a parameter (most often.(отрицательная прибыль называется убытком) Warning: Revenue is not the same thing as Profit. quantity of goods sold) at which Revenue equals Costs. equivalently. точка безубыточности) Break-even Point = Point at which cost or expenses and revenue are equal: there is no net loss or gain. Depreciation.

Revenue = Costs + Profit (8) Gross Profit = Revenue – Cost of Goods Sold (9) Operating Profit = EBIT = Gross Profit – Operating Expenses (10) Net Profit = Operating Profit – Taxes – Interest (11) Net Profit = Revenue – Cost of Goods Sold – Operating Expense – Taxes – Interest (12) Breaking even: Revenue = Costs. All Rights Reserved 8 . or. Victor Rogulenko. Profit = 0 © 2016-2017 Flessibilità. equivalently.Paying back requirement: grow profits so that Incremental Profits ≥ Incremental Costs (Investment) Formulae (7) Profit = Revenue – Costs or. equivalently.

маржинальность) = share of profits in revenues of a given company. year. etc. product. month. week. All Rights Reserved 9 .) = Profit / Revenue = (Revenue – Costs) / Revenue © 2016-2017 Flessibilità. Ratios / Shares (соотношения / доли) Market share (доля рынка) = the percentage of a market (defined in terms of either units or revenue) accounted for by a specific company = Revenue / Market Size (in value terms) or Sales Volume / Market Size (in volume terms) (Выручка / Размер рынка (в денежном выражении) или Физический объем продаж / Размер рынка (в физических объемах)) Warning: Revenue / Market Size (in value terms) ¹ Sales Volume / Market Size (in volume terms).2. Victor Rogulenko. These are different things! Market size = total value (or volume) of goods / services sold in a given market in a given period (usually one year) Formulae (13) Market Share (by default – in value terms) = Revenue / Market Size (in value terms) (14) Market Share (in volume terms) = Sales Volume / Market Size (in volume terms) Profit margin (норма прибыли. or business unit in a given period (day.

wholesale price).g.g. • profit per customer dollar spent Warning: Profit and Revenue must be calculated for the same company. Profit margin = (Sale price – Cost of item) / Sale price Formulae (19) Markup = (Sale price – Cost of item) / Cost of item Contribution Margin (вклад в формирование прибыли) © 2016-2017 Flessibilità. • profit per dollar of sales. as a percentage of the cost of the item. retail price) and the cost of the item (e.Synonyms: • profitability. product. not Profit for 90 days vs Revenue for the entire year) Formulae (15) Profit margin = Profit / Revenue = (Revenue – Costs) / Revenue (16) Gross Margin = Gross Profit / Revenue (17) Operating Margin = Operating Profit / Revenue (18) EBIT Margin = EBIT / Revenue Markup (наценка) = difference between the price we sell at (e.g. = (Sale price – Cost of item) / Cost of item Compare: for 1 item. Victor Rogulenko. or business unit and the same period (e. All Rights Reserved 10 .

Represents the share of revenue not “consumed” by variable costs and left to pay for fixed costs and to generate a profit = (Price – Variable Costs per Unit) / Price Formulae (20) Contribution Margin = (Price – Variable Costs per Unit) / Price = (Revenue – Variable Costs) / Revenue (21) Extra Revenue Required to Make up for a Loss = Loss / Contribution Margin Efficiency (эффективность. money. All Rights Reserved 11 . not an absolute value. and time in doing something or in producing a desired result = Useful Output / Total Input Efficiency is always a ratio. Victor Rogulenko. efforts. Rather. производительность.= product's revenue minus all associated variable costs divided by revenue. коэффициент полезного действия (КПД)) = ability to avoid wasting materials. Average Efficiency of X Subjects = (Total Useful Output of All X Subjects) / (Total Input for All X Subjects) Warning: you should not calculate X efficiencies separately and then take their average. прибыль от инвецитий = прибыль / сумма инвестиций) © 2016-2017 Flessibilità. calculate two numbers: Total Useful Output (for all subjects) and Total Useful Input (for all subjects) Productivity and Return on Investment • Productivity = Quantity (or value) of Products Produced / Hours Worked (or People Employed) • Return on Investment = Profit / Investment (возврат инвестиций. energy.

than Z% = (X – Y) / Y x 100%. • growth by X% Warning: If X is larger (smaller) than Y by Z%. Churn (текучка. months.g. All Rights Reserved 12 . Compound Growth (сложный процент) = growth over several periods by the same fixed growth rate each period = geometric mean of all growth rates in a given period = [ (Final Value / Starting Value) ^ (1 / Number of Years) ] – 1 Synonym: CAGR (compound annual growth rate) (среднегодовой прирост в сложных процентах) Note that CAGR can be used not only for years but for smaller compounding periods. too. etc. quarters. • percentage increase.Formulae (22) Efficiency = Useful Output / Total Input (23) Average Efficiency = Total Useful Output / Total Input (for All Subjects) Growth Rate (темп прироста) = New value of a variable / Old value of a variable – 1 Synonym: • simple growth. The denominator is what follows after “than” (in this case Y rather than X). E. отток клиентов) = the annual percentage rate at which customers stop subscribing to a service or employees leave a job = negative growth rate of customer base © 2016-2017 Flessibilità. Victor Rogulenko.

Victor Rogulenko.Formulae (24) Simple growth Z% = (X – Y) / Y x 100%. All Rights Reserved 13 . then Final Value = Starting Value x (1 + Z%) ^ [Number of Years] = Starting Value x (1 + Z%) x (1 + Z%) x … x (1 + Z%) (multiplication as many times as the number of years) © 2016-2017 Flessibilità. (25) Compound growth = CAGR = [ (Final Value / Starting Value) ^ (1 / Number of Years) ] – 1 (26) If CAGR = Z%.

rather than %). All Rights Reserved 14 . Exhibits Absolute Values All values are absolute (units / dollars etc. You need to check them in the text © 2016-2017 Flessibilità. Values given for each particular object and each period individually Notice that units of measurement are not necessarily present on the graphs.3. Victor Rogulenko.

Victor Rogulenko. All Rights Reserved 15 .Waterfall Absolute value increase over base value. © 2016-2017 Flessibilità.

© 2016-2017 Flessibilità. All Rights Reserved 16 .Shares – Pie Charts Pie charts showing split of total into separate segments. Victor Rogulenko. Total (in absolute value) may or may not be shown Shares – Two-dimensional Each point corresponds to two values – one on the horizontal axis and one on the vertical axis.

Change Difference (in absolute values or in percent) between beginning and end of a specific period for a specific product group Cumulative Values Each bar shows the share of total of all items up to the current one. the second bar shows the share of © 2016-2017 Flessibilità.g. Victor Rogulenko. the first bar shows the share of total sales of the largest market. E. All Rights Reserved 17 .

Victor Rogulenko. Base value is unknown (it’s not 100 dollars or 100 units). © 2016-2017 Flessibilità. All Rights Reserved 18 .the largest two markets. Only relationship between base value and other values if known. Hence the share of the second largest market is 28% . the third bar – of the largest three and so on.18% = 10% (not 29%) Index All values shown as % of base value (Base = 100).

Deviation from Average All values shown as % deviation from average for the three groups (A. Victor Rogulenko. © 2016-2017 Flessibilità. All Rights Reserved 19 . B. and C) each year.

population. Victor Rogulenko. You need to check them in the text Percentile / Decile / Quintile / Quartile Objects (companies.) are split into separate groups: • Percentile = 1/100 = 1% • Decile = 1/10 = 10% • Quintile = 1/5 = 20% • Quartile = ¼ = 25% © 2016-2017 Flessibilità. The split is given within each bar. All Rights Reserved 20 . etc.Mixed (Percent and Absolute Values) Total value is given at the top. Notice that units of measurement are not necessarily present on the graphs.

alternatively. Victor Rogulenko. the second quintile has the following 20% group with the next to lowest value. Value Channel / Funnel Each next steps indicates a smaller portion of the total (or.g.. All Rights Reserved 21 . up to the fifth quintile with the largest value of a variable. the first quintile has the 20% group with the lowest value of a variable.The groups are sorted by corresponding values of interest from smallest to largest. E. etc. © 2016-2017 Flessibilità. a portion of the previous step).