Question

Since profitability was a concern, Bain benchmarked EBITDA margin of Client co against the peer set to understand competitive positioning. The chart below represents margin range of all companies in Pharmaceutical industry with three key players highlighted separately. 2015 represents the actual margins while 2017 refers to estimates based on analyst perception of companies' current strategy EBITDA margin range 40% 31% 30 Peer 2 27% Peer 2 20 Peer 1 Peer 1 10 Client co Client co 8% 7% CY2015 CY2017

Answer 1

The correct answer is option d) 50%

Profits in 2015 = EBITDA margin in 2015 x Revenue in 2015 = 7% x $ 2.5 bn = 0.175 bn

Revnue in 2017 = Revenue in 2015 x (1 + g)^2017-2015 = $ 2.5 bn x (1 + 3%)² = $ 2.65225 bn

EBITDA margin = Approx 10% (read the value corresponding to red line in CY2017)

Hence, Profits in 2017 = 10% x $ 2.65225 = $ 0.265225 bn

Hence, %age increase in profits = (Profits in 2017 - Profits in 2015) / Profits in 2015 = (0.265225 - 0.175) / 0.175 = 51.56%

Hence, the correct answer is option d) 50%