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.

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