What is a profitability tree?

What is a profitability tree?

Profitability trees are a special kind of issue tree, that is created with the sole intent of analyzing the profits of a company. And here’s why they’re so important: Every business wants profits. Even more, every business needs profits.

What is a driver tree?

Driver Tree Definition The driver tree is a way for businesses (and consultants) to understand the impact of changes to key variables that change overall outcomes. The driver tree focuses on visually laying out the smaller components that drive value in a business.

What is a value drivers tree?

The value driver tree is a tool used to identify the root cause of an issue. In our case it is used to identify causes of business issues. The value driver tree is also known as a fishbone analysis. In this case the issue facing the business is declining profitability.

What is a profitability framework?

A profitability framework helps you assess the profitability of any company within a few minutes. It starts by looking at two simple variables (revenues and costs) and it drills down from there. This helps us identify in which part of the organization there is a profitability issue and strategize from there.

How do you solve a profitability case?

To solve a profitability problem:

1. find the root cause using the profit formula.
2. use a tree structure.
3. go down one branch at a time and segment it.
4. quantify and look for trends.
5. locate the biggest driver.
6. find out why through qualitative analysis and additional analysis (e.g., using the 4 Cs Framework).

What are the value drivers of a company?

There are three categories of value drivers: growth drivers, efficiency drivers, and financial drivers. As shown in Figure 1, companies tend to manage these value drivers in four ways. By focusing on value drivers, management can prioritize the specific activities that will affect performance in each area.

What is KPI tree?

KPI Trees are a graphical method of managing KPIs. They are essentially a tree diagram, on which KPIs are positioned in order that there is a clear structure amongst them. So, KPI Trees can be very useful in bringing: Clarity – helping to understand what KPIs are available, and what they measure.

What are the three categories of value drivers?

There are three categories of value drivers: growth drivers, efficiency drivers, and financial drivers.

What are four value drivers?

Business appraisals are driven by four value drivers: the historic income stream, the future net cash flow, the market value of the stockholders’ equity and the discount rate.

How do you structure a profitability case?

Key framework for profitability cases (Top)

1. Profit = Revenue – Costs.
2. Revenue = Price x Volume of Units.
3. Costs = Fixed Costs + Variable Costs.
4. Variable Costs = Cost per Unit x Volume of Units.

How do you do a profitability case?