I was posed an financial analyst interview question today that I’m hoping to get some insight into how to answer IF this is the wrong forum to post this I apologize.
If a company has a division that has 3 product lines established at the begining of the year, and mid year they are contemplating adding a 4th line what steps would need to be taken.
Also, another hypothetical is to see if the 4th line could replace line 2 of production. Again what steps?
I answered to the best of my ability but I would love some others insight into this.
Err… sounds like a very opened ended question… You would need to know all sorts of things about the product lines. Let’s say GM makes cars, trucks and motorcycles. They want to add a fourth product line - boats. Clearly, you would need to know a lot about the market for the fourth product and GM’s competitive advantage in that product.
The second question also depends on the specifics. GM cannot replace trucks with boats, but IBM can replace typewriters with computers.
I agree. My interviewer knew I didnt’ have financial analyst role prior but this role would be encompassing it.
I simply replied that I would need to figure out the cost variables for the new line (ie product, labor, material) and figure out any scenarious that could effect the line (ie new laws, shortages, etc) and run a scenario combined with the other lines
Another question I had was do you know how I can learn/teach myself about financial analysis further.I’ve tried googling to see if there was a course that could teach me the basics and let me walk through a case study. I’m not sure if you or another member may know of a site/company.
The key question is whether they can make a profit higher than the cost of capital and whether success in this line will cannibalize sales and profits in other lines. So your answer seems to cover most points, but you would also want to figure out how much investment in new assets is required and whether the revenue generated is likely to be larger than the cost of financing that capital (generally WACC).