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Hard Profitability Merger & Acquisition ROI Calculation

Coffee Shop

#Consumer Goods #Retail
ProHub Comment

This case requires candidates to synthesize operational data from multiple menu items and customer flow patterns to calculate annual profitability, then determine 5-year ROI. The case tests financial modeling skills, attention to detail in calculations, and the ability to contextualize findings through advanced insights such as climate risk and location advantages.

Estimated Time 36 minutes
Difficulty Hard
Source PeterK
10 / 100
Your friend runs a nice coffee shop in Palisades, the largest ski resort in Tahoe. Situated in a prime location, her coffee shop is a great success. She has approached you with an offer to sell her business for $200k. What would the 5-year ROI of this investment be?

Clarifying Information

  1. Exhibit 1. Operational and Financial Metrics of the Coffee Shop, 2021
  2. The ski season lasts for around 6 months a year
  3. Consider 360 days per year
  4. The variable costs are 70% of revenue
  5. The primary fixed cost is rent. It’s $5,000 per month round the year
  6. The coffee shop is open only during the ski season. The working hours are from 7 am to 4 pm seven days a week
Mock Interview
Interviewer

Your friend runs a nice coffee shop in Palisades, the largest ski resort in Tahoe. Situated in a prime location, her coffee shop is a great success. She has approached you with an offer to sell her business for $200k. What would the 5-year ROI of this investment be?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Practice this case with AI Mock Interview

A ski resort coffee shop is being offered for sale at $200k. Candidates must analyze menu pricing, customer volumes (stratified by slow/rush periods), and cost structure (70% variable costs, $5k/month fixed rent) to project annual profits (~$48k) and calculate a 5-year ROI (20%).

Key Insights:

  1. Revenue calculation requires combining multiple product lines with different penetration rates and order volumes
  2. Customer flow varies significantly by time period (Slow: 5 hrs × 12 customers/hr; Rush: 4 hrs × 30 customers/hr = 180 customers/day total)
  3. Seasonal nature of business (6 months operating) must be factored into annual revenue and profitability
  4. 20% ROI over 5 years is marginal relative to inflation (2-3% annually), suggesting negotiation of purchase price
  5. Risk factors include climate change impacting ski season length and business model dependency on high foot traffic location