Leverage Sensitivity of Profitability through Sales Cycles

Being able to project business & financial performance in an inherently uncertain environment is a key determinant of organizations' success in navigating through fluctuations in business cycles. Faced with changing market dynamics and evolving customer preferences, firms with effective & efficient projection frameworks are better-equipped to quickly arrive at critical strategic decisions with regards to capital structure and debt management.

An integrated user-friendly business simulation engine allows organizations to develop robust projections of their business & financial performance that accommodate variations in the sales cycle. A versatile profitability projection solution allows firms to monitor the sensitivity of bottom-line performance to variations in the top-line. In particular, estimation of the degree of fluctuations in net profits as a result of fluctuations in revenues, and modelling of such bottom-line variations as a function of financial leverage, allows firms to optimize debt management decisions.

Armed with such leverage sensitivity information, firms are better equipped to decide the mix of short-term debt and long-term debt that is most appropriate given the stage of the business cycle the firm is about to enter.

Key Features

Model expected fluctuations in top-line performance based on sales projections, in conjunction with expected movements in general business cycles
Build in the stochastic nature of revenues, based on past volatility as well as expected future volatility
Calibrate the cost parameters, based on the bill of materials, factor inputs, fixed & variable cost mix, etc
Model a range of financial leverage levels as well as debt management decisions
Monitor the expectations of profitability for the various scenarios fed to the model

Business Benefits

Visually-appealing decision engine easily usable by a wide range of business end-users
Sensitivity tracking of variations in profitability with fluctuations in the sales cycle
Impact assessment of changes in financial leverage on bottom-line performance Projection of capital structure dynamics, especially the mix of short-term and long-term debt, on bottom-line results
Ahead-of-time scenario modelling for various capital structure and financing decisions
Easy-to-use decision engine to guide managerial choices of debt mix and capital structure

Analytics Backbone

Corporate Finance Analytics
Profitability Modelling
Scenario Analysis
Sensitivity Analysis
Visual Analytics
Exploratory Analysis

Technology Variants

Tableau
Qlik View
SAS Visual Analytics
SAP Lumira
Oracle
R

The solution is technology-agnostic, and available over a range of technology platforms. Choice of the best-suited platform for specific installations is governed by the existing ERP product being used by the client, in order to provide a cost-effective solution and to ensure seamless connectivity & integration. Open-source adaptations of the solution are also available to reduce the total cost of ownership for the client.