Business Case Calculations
Business case calculations appear in numerical reasoning tests for consulting, finance and MBA roles. You work with scenarios: investment decisions, project profitability, or "what if" analysis. Here's how to approach them.
Common Calculations
ROI (Return on Investment) – (Gain − Cost) ÷ Cost × 100. Or: Profit ÷ Investment × 100. Example: Invest £100, get £120 back. ROI = (120 − 100) ÷ 100 = 20%.
Payback period – How long until the investment is recovered. If you invest £1000 and get £250 per year, payback = 1000 ÷ 250 = 4 years. Simple payback ignores time value of money.
Profit margin – Profit ÷ Revenue × 100. Use when comparing projects or products.
Break-even – Fixed costs ÷ (Price − Variable cost per unit). How many units to cover costs.
Percentage change – ((New − Old) ÷ Old) × 100. For growth rates, cost savings, or efficiency gains.
Scenario Questions
"What if X increases by 10%?" – Recalculate the affected values. E.g. revenue up 10% → new revenue = old × 1.10. Then recalculate profit, margin, etc.
"Which option is better?" – Compare on the metric asked (profit, ROI, payback). Ensure same time period and scope.
"What is the minimum/maximum?" – Set up the equation and solve. E.g. "Minimum sales needed for 15% margin" → profit = 0.15 × revenue, and profit = revenue − costs. Solve for revenue.
Strategy
Identify the question – What is being asked? ROI? Payback? Comparison?
List the inputs – What data do you have? Revenue, costs, investment, time period?
Apply the formula – Use the correct formula. Watch units (e.g. £000 vs £m).
Check reasonableness – Does the answer make sense? Negative ROI for a profitable project? Double-check.
Pitfalls
- Wrong base – ROI uses investment as denominator, not revenue. Profit margin uses revenue.
- Mixing time periods – Annual cash flow vs total investment. Payback needs consistent units.
- Ignoring context – "Best option" might mean highest ROI, fastest payback, or lowest risk. Read the question.
Practice with numerical reasoning questions and the numerical reasoning test.
Frequently Asked Questions
What if the question gives NPV (Net Present Value)?
NPV discounts future cash flows to today. NPV > 0 means the project is worth doing. Simple tests may give you the discount rate or pre-calculated NPV. Focus on interpreting the result or comparing options.
How do I handle multi-year payback?
Sum cash flows year by year until you reach the investment. E.g. Invest 1000, Year 1: 300, Year 2: 400, Year 3: 400. After Year 2: 700. Need 300 more in Year 3. 300 ÷ 400 = 0.75. Payback = 2.75 years.
What is the difference between ROI and profit margin?
ROI = profit ÷ investment (capital). Profit margin = profit ÷ revenue. They measure different things. A project can have high margin but low ROI if capital is large, or vice versa.