Finance & Formulas
for CS Students

Every single case that involves a struggling business reduces to this. Before anything else, burn this into your memory.

Think of it like a program: profit() is the function. It takes two inputs: revenue and cost. When profit is declining, you debug by checking both inputs. From the Haas case book: "Profit is a function of Revenue and Costs" — that's literally what interviewers write in their guide notes.

The income statement is the single most important document in case interviews. You'll be handed one and asked "what do you notice?" Here's the full structure from the Haas case book:

How much you keep after paying to make the product. A software company might have 80%+ gross margins because each extra user costs almost nothing. A grocery store might have 25%.

After paying both COGS and operating expenses (rent, salaries, marketing). This is your profit from actually running the business.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's used everywhere in M&A and valuation because it strips out financing and accounting choices to show how profitable the core business is. Think of it as "cash profit from operations."

Costs that don't change with volume. You pay them regardless of whether you sell 1 unit or 1 million units. Like a cloud server you rent regardless of traffic.

Costs that scale with production. Like AWS bills that go up when more users hit your API. In manufacturing, variable costs are typically the raw materials and direct labor per unit.

Break-even is the volume you need to sell just to cover all costs (zero profit). Super common in market entry cases: "Is it worth entering this market?"

When a company's profits are declining, here is the exact process interviewers expect. This appeared in virtually every case book.

The fastest way to value a company in a case. Find similar public companies, look at their Price/EBITDA multiple, and apply it. It's like saying "my startup is like Stripe, and Stripe trades at 30x earnings, so I'm worth 30x mine."

The idea: money today is worth more than money tomorrow (because you can invest it). DCF calculates how much future cash flows are worth in today's dollars. This is the "real" valuation method but you rarely calculate the full thing in a case — you just need to know the concept.

NPV tells you whether an investment is worth it. If NPV > 0, the investment earns more than your cost of capital → do it. If NPV < 0 → don't do it.

The simplest investment test: how many years until you get your money back? McKinsey cases frequently give you a threshold (e.g., "board requires payback in under 5 years") and ask you to check if the investment clears it.

How much profit you generate per dollar invested. The higher, the better. Think of it like the interest rate your investment earns.

When you have limited capital and must choose between multiple projects, rank them by NPV per dollar invested. Pick the highest-ranked ones until you run out of money.

In any pricing case, structure your thinking around these three lenses:

Common calculation chain in market entry cases: start from total market, apply your expected market share, get your revenue.

Unit economics = profitability at the level of one unit sold. Mastering this lets you quickly size up whether a business makes sense. Think: "what's the profit on one beer barrel, one shoe, one parking meter?"

From the Haas book: "Revenue → P × Q. Cost → F + V. Margin → each divided by Revenue." These three rows are what every interviewer has in their guide notes.