Why some businesses win: competitive advantage and the economics of strategy
Does a bakery chain earn its cost of capital?
The prompt
Illustrative numbers. A bakery chain in Spain has EUR 10 million invested in its shops, ovens and stock. Its operating profit (EBIT) is EUR 2 million a year and the tax rate is 25 percent. It is funded 40 percent by bank loans at 6 percent interest. The other 60 percent comes from owners, who expect 12 percent a year for the risk. Interest is tax deductible. Does the chain create value, and how much a year?
Before you reveal anything, plan your own structure and first move on paper. Then reveal one part at a time and compare.