Capital One
GMV (Gross merchandise volume): GMV is the same as gross revenue
Gross Profit Margin: Your gross profit is calculated by subtracting your COGS from your total revenue and reveals your business’ production efficiency or ability to optimize your material, manufacturing, and labor costs. However, since gross profit is a pure dollar amount and not a percentage of your revenue, it can increase even when your financial performance declines.
weighted averages: A weighted average is the average of a data set that recognizes certain numbers as more important than others. Weighted average = sum of (number*weighting factor)/sum of all the weights
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Profit: Profit is the remaining revenue, also known as income, after a company has accounted for all expenses.
Types of profit (net income):
• Gross Profit (labor, materials)
• Operating profit (EBIT)before removing interest and tax
• Net profit: total profitability Net Profit: Net Profit = Total Revenue – Total Expenses
Revenue Operating revenue + non-operating revenue = total revenue
• Operating Revenue
• Non-operating revenue(donations)
Gross Profit Margin = (Gross Profit / Revenue(sales)) * 100. Operating Profit Margin = (Operating Profit / Revenue(sales)) * 100. Net Profit Margin = (Net Income / Revenue(sales)) * 100.
Return on Assets = (Net income / Assets) * 100.
Return on Equity = Net Income / Shareholder’s Equity.
lifetime value (LTV): which tells you how much revenue you can expect to bring in from an average customer over its lifetime. filter out which media outlets gave you the greatest return on investment
Conversion and conversion rate: Conversion KPI is commonly the desired result of the customer’s interaction. purchase made through an online store, attracting new customer, returning customer, cost per conversion, how many conversions are considered qualified leads? How much gross revenue did you generate? Conversion rate= click traffic/number of conversions
Breakeven point: Your business’ breakeven point is the quantity of product you must sell so that your total revenue equals your total costs. Knowing your breakeven point is crucial because it serves as the minimum goal your business should try to achieve in order to not lose money during a specific time period. Even better, if you surpass your breakeven point, your business will turn a profit during that time period. Break-even quantity
= Fixed costs / (Sales price per unit – Variable cost per unit)
Average fix cost: average fixed cost, which is your total fixed cost divided by your total number of units produced. Fixed costs are your business’ costs that stay constant regardless of if your business sells more or less of its product.
Profitability: Profitability is a measure of an organization’s profit relative to its expenses. Organizations that are
more efficient will realize more profit as a percentage of its expenses than a less-efficient organization, which
must spend more to generate the same profit.
Profitability ratio
CAC: Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of
Average variable cost: Variable costs are the cost of all the labor and materials used to produce a unit of your product. Your variable costs directly depend on the amount of product you sell, so the more units you sell, the higher your variable costs, and the less units you sell, the lower your variable costs. Some examples of variable costs are physical materials, production equipment, sales commissions, staff wages, credit card fees, online payment partners, and packaging and shipping costs.
Cost of Goods Sold: Your business’ cost of goods sold is the cost of acquiring or making the products you sold during a certain time period, like material, manufacturing, and labor costs. In other words, they’re your cost of sales or cost of doing business.
Growth rate: To calculate the growth rate, take the current value and subtract that from the previous value. Next, divide this difference by the previous value and multiply by 100 to get a percentage representation of the rate of growth. (End value/starting value) *100%= growth rate OR Starting values – end value/starting value = growth rate
EBITDA = Sales – Expenses (Excluding Interest, Tax, Depreciation, and Amortization) earnings before interest, tax, depreciation, and amortization
bed debt: Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. This expense is a cost of doing business with customers on credit, as there is always some default risk inherent with extending credit.
Market share & Market penetration
Market penetration is the percentage of your target market that you sell to during a given time period.
Market share is the portion of your market’s total value that your business commands.
Customer Acquisition Cost (CAC)
This is the most popular metric in determining how well or otherwise a business is doing in relation to its overall performance. It is basically the length a business goes just to acquire a customer. This can be simply put as the
cost of convincing a potential customer to buy your product. A business that goes a long way to acquire a single customer may take an equal amount of time or length to recover that cost. It’s important for a business to stay in line at all times in order not to derail its chances of enjoying quick profits. Keeping CAC as low as possible should be the goal of every credit card business. To determine your CAC, divide all the costs spent acquiring more customers (marketing expenses) by the number of customers you acquired within that period of time. Charge-Offs
After there are defaults, the next step is the charge off. This is a KPI that captures the point when the outstanding debt is not likely to be paid at all. Normally, this would be after 120 days, and the debt would be handed over to a debt collection service or sold to independent debt buyers.
Interchange Fee: Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank, sometimes called the merchant bank. Card associations, like Visa and Mastercard, facilitate the process. For the service they provide, associations collect a fee from the acquiring bank – this is what’s known as the interchange fees. Typically, the interchange fee is comprised of a percentage of the
total transaction plus some fixed amount (e.g., 2% + $0.10).
Credit Card Balance: A credit card balance is the total amount of money that you owe to the credit company. The balance changes based on when and how the card is used.
Annual percentage rate (APR): refers to the yearly interest generated by a sum that’s charged to borrowers or paid to investors.
The delinquency rate refers to the percentage of loans that are past due. It indicates the quality of a lending company’s or a bank’s loan portfolio.
Defaults 最高能到多少
Defaults: all Defaults occur at the end of the year. The earlier it happens, the less interest we will receive, because once the Default occurs, we will have fewer customers.
Capital One MINI CASES
Rideshare App
Case 是一个 startup 想搞 rideshare，跟 uber 差不多的道理，然后 ride 收到的钱公司和司机分成这样。现在这个 startup 考虑去新城市发展，然后想看一下 profitability 怎么样，问有什么要考虑的因素?
Synthesis concise: The case is that rideshare app is planning to develop their app in a new city. The app is a rideshare app that is profitable through the company’s share of the profit with the hired drivers.
Objective: we need to evaluate whether rideshare can be profitable in the new city and suggest factors to keep in mind when launching the app in the new city
Clarify: are there any competitors in the new location?
Rideshare App going to a new city. How to calculate the expected profit per driver?
Profit per driver
If I want to know the profitability of each driver, I need some other information, because profit= revenue-cost, I want to know their average daily orders, cost per order, profit per order, or in what way the company settles their salary, whether they are paid by the number of days or by the number of orders
What to consider when launched to a new city
the profit of each driver is closely related to the profit of the company, and I think it should be analyzed from the following aspects.
1) if the market with high profit margins including what is the market size, what is the market growth rate, what are average profit margins.
2) competitor’s situation including is there any competitors in the new location, how many competitors, how much share they have, is there any competitive advantages?
3) barriers to entry the market like how much would it cost to enter the market? How much is the fixed cost?
4) Customer needs and segments
5) profitability and financials which means if we can breakeven and make a profit in the new
The above factors decide what the expected profit per driver could be. There are also other factors that could impact the profit per driver including some other risks could happened if we launch to a new location
1. Every day the company will pay $700 to each driver, working 8 hours a day, each driver will take 5 orders per hour. Then the app will receive 2400 orders per day, and each order will earn $30 on average. Then the daily fix cost is 10000, let you calculate the daily profit.
Clarify: how many drivers we hired, or we have hired just the right drivers to meet our operational needs Profit = Revenue – Cost
Revenue = # of orders * price per order = 2400*30=72000
Cost = fix cost + pay for the driver = 10000 + pay for the driver
Pay for the driver: 5 orders per hour * total of working hours = 5 * 8 = 40 orders # Of drivers: 2400/40 = 60 drivers
Pay for the driver: 60 * 700 = 42000 per day
Profit = Revenue – Cost = 72000 – 10000 – 42000 = 20,000 profit per day
2. Ok now assume that the day is split into surge and non-surge demand hours. Non-surge demand lasts 4 hours and has 800 rides. Surge demand lasts another 4 hours and has 1,600 rides. Assume you can only hire drivers for the full day. How much would you need to charge during surge hours to breakeven on your profit from the first question?
Profit = Revenue – Cost
Profit= 20,000
Cost: Peak hours- 1600/4 = 400 orders need to be delivery in an hour
400/5 = 80 driver need to have
80 * 700 = 56,000 pay to the driver Revenue = Profit + Cost = 20,000 + 56,000 + 10000= 86,000
Charge of each order = 86000/2400 = $35.83 per order
3. Now the problem is, peak hour we do not have so many cars, and not so many drivers, ask you how to do
The problem is one of oversupply, I would consider it from both demand & supply.
1. reduce demand:first, consider providing coupon during non-peak hours, so that passengers travel less during non-peak hours. Second, charge high prices during peak hours to reduce the number of orders generated. There are advantages and disadvantages to both ways, for example, if providing coupons, we need to consider whether we can break even, if we increase peak period price, we need to consider whether we have risk of lose customers, etc.
2. improve supply: first, consider develop a multi-person carpool program to reduce the demand for vehicles. Second, free lancers, encourage the masses to use their time off work as drivers, we can pay by per order, which can also reduce the demand for vehicles and full-time drivers. There are advantages and disadvantages to each of these two approaches, such as the funding, time, and feasibility required to develop two new programs.
4. whether you think you should go to this new city
I will develop new projects in new cities for the following reasons based on the data I know
1. As a startup. The fact that the company can be profitable is already very attractive to me
2. Although currently hiring too many drivers during peak hours will affect our profitability, I believe it can be reduced or even avoided by improving our strategy.
3. early on, it is more important for startups to serve our customers first. Only in this way can we gain a better user reputation and build up our brand influence, so that we can gradually increase our market share and complete our ultimate profit.
The next aspect I want to understand may be more details, such as whether there are other costs not mentioned, the annual expected profits of customers, market research of users, competitor analysis, so as to be more accurate my report and conclusions
5. Draw a graph for relationship between demand and price
Commodity surplus when supply > demand; When demand > supply, the commodity is in shortage
Credit Card Rebate 返现
credit card rebate 的题目:概念上是有 control + test 两个 group，testing group 有 1% cashback，然后 control group 没有，average 消费是 200 for control group and 300 for testing group，但两者都有一样的 interchange fee 1.5%
1. credit card 有哪些 revenue 和 cost
Revenue: Interest Revenue, Membership Fees, Interchange fees
Cost: Operations Cost in servicing a card (salaries, call center), IT infrastructure Costs, Marketing Costs, Cost of Capital (capital used for lending to card customers)资本成本, Default Costs
2. Should we push this program 是不是应该 launch rebate program?
In order to decide if we should launch rebate program and since Profit = Revenue – Cost, I will calculate the profit of each group
control: 200*1.5%= 3
testing: 300*(1.5%-1%) =1.5
Profit of control group >Profit of testing group, so cash back is not worthy
3. 如果 control group avg balance 1000, interest rate 6%, 算 test group 的 avg balance 得是多少才能弥补
x*(1.5%-1%+6%) = 1000*(6%+1.5%) x=1153.85
x 是 testing group average balance
x*(interchange fee- cashback – interest rate) = 1000*(interest rate+ interchange fee)
1. What things would you consider before approving or declining such a transaction?
Revenue: Interest Revenue, Membership Fees, Interchange fees
Cost: Operations Cost in servicing a card (salaries, call center), IT infrastructure Costs, Marketing Costs, Cost of Capital (capital used for lending to card customers)资本成本, Default Costs
Credit card Over limit
A customer is about to make a transaction on their credit card which would push their balance over the credit
2. The customer wants to make a transaction of $300. Their current balance is $4800. Their credit limit
is $5000. APR is 15%. Charge of borrowing is 3% for the balance. Interchange fee by MasterCard is
1.5% per transaction. Your data suggests that 98% of people pay their over-limit balance within 3
months. 2% default rate. In this case, for the $300 transaction, the customer starts paying $100
every month after the end of the first-month post-transaction. Would you approve this transaction?
Why? (There was some other technical jargon here that I can’t remember) expected gain = 4.38,
annul interest rate
3. Research suggests that Capital one loses money majority of the time over-limit transactions are
approved. Assuming Capital one writes off the over limit amount, why do you think the loss would
be present? What would be the loss amount per transaction?
4. CapitalOne has millions of such transactions taking place every second. What initiatives will you
take to make the transaction approval system more efficient? What factors will you take into
consideration?
5. How would you oversee the project?
6. what default rate to make it breakeven? 3.4%
7. draw a graph to reflect relationship between default rate (X axis) and profit (Y axis)
8. 现在发现实际 default rate 是 7%而不是 2%，我们应该 approve 吗?算出来为-10.92,所以不要 approve
(如何决定是不是要 approve 300 刀的消费，计算比较常规，但 trick 的一点是如何计算 interest，保守估计的时 候，要 charge off 的人是不会付 interest 的，所以要把他们除去。还是 revenue-cost=profit 一套分析，就是一 定要问清楚每个 rate 是 revenue side 还是 cost side，yearly 还是 monthly，要乘在哪笔钱上，乘完之后与 balance 和 limit 的关系. 主要是知道 cost of fund 的利率，然后来计算 balance，但是 balance 是每月在变的)
之后面试官就给出来了具体情景和数据，消费有一笔 300 刀的超额消费，给出消费者违约
的概率 Default rate，300 刀平均分三年还清，每年的利率，计算三年后是获利还是赔钱， 还有其他一些数据请原 谅实在想不起来了，想起来了再补充。
因为每年还完 100 刀之后剩余的钱要重新计算利息所以要分三年算，然后减去违约带来的 损失，来确定是否 approve 这笔消费。(Expected Rev)
确认获利的话消费者违约的最大概率是多少 (用 break-even 的思路来做)，还有哪些数据可 以用到这个例子中进行 判断，有没有什么情形是我们没有考虑到的，诸如此类
Credit card Reward issue
一个信用卡 reward 该不该 issue 的问题, assumptions:interchange=0.02, monthly spend = $500 on avg. per customer, avg balance = $2000, net interest margin = APR – Cost of Fund = 10%, operate expense = $50 per year, loss rate = 3% (default rate)
1. What are things need to consider?
Revenue: Interest Revenue, Membership Fees, Interchange fees
Cost: Operations Cost in servicing a card (salaries, call center), IT infrastructure Costs, Marketing Costs, Cost of Capital (capital used for lending to card customers)资本成本, Default Costs
2. What is the profit?
Share my ride with credit card
If you are a business manage, we need to collaborate between share my ride and credit card from us. If we going to produce new credit card type, we are seeking to cooperation partnership company to produce and launch together.
1. What things need to be evaluated/ How to evaluate the partnership company?
My aspect for evaluate the partnership company including
a. if the market with high profit margins including what is the market size, what is the market growth
3. How to breakeven it rewards rate = 0.01%
Short cut does not calculate outstanding balance
rate, what are average profit margins.
b. competitor’s situation including is there any competitors in the new location, how many competitors, how much share they have, is there any competitive advantages?
c. barriers to entry the market like how much would it cost to enter the market? How much is the fixed cost?
d. Customer needs and segments
e. profitability and financials which means if we can breakeven and make a profit in the new location
2. Evaluate this event, will you implement or not?
Revenue: Interest Revenue, Membership Fees, Interchange fees
Cost: Operations Cost in servicing a card (salaries, call center), IT infrastructure Costs, Marketing Costs, Cost of Capital (capital used for lending to card customers)资本成本, Default Costs
3. If not from financial side, what the factors you will focus to evaluate?
If the partnership conflict with my company structure, align with our values Understand the level of commitment
Benefits not from financial side
Brand synergy
Cost/benefit analysis based on the partnership company Look at the big picture
Consider Leverage
Cooperation threshold
Profit = Revenue – cost
Revenue: 500,000*89+15*12*500,000=134500000 Cost: 5*12*500,000= 30,000,000
Profit= 134500000-30000000=104500000
500k*2 +79*500k+ 15*500k*12 -5*12*500k = 115,500k
Cost: 30M+50*500,000+10M=65M
Profit = 104500000 cost = 65M revenue = 169,500,000 169,500,000= x*89+15*12*x
New customer= 580,112
6. 现在新用户中有 20%的人会好羊毛，用了 freeride 就取消卡，现在需要多少新用户去保证 profit
580,112*20%= 116023
20%人带来的 revenue:116023*89+15*12*116023=31210187
7. 如果有一部分客戶在申请卡后只使用附近 benefit，而不进行卡的消费，问有什么 suggestion 或者 strategy 来 避免部门这个情况
4. Supposed we have 500k customer, card annual fee is $89, interest rate $15/month, fraud cost
$5/month. How much profit for a year? / 500,000 active credit cards, Revenue receives $2 per card,
$79 annual member fee, Interest revenue would be 15$ per card per month, Cost for prevent fraud
would be $5 per card per month. What is the profit we will have?
5. We support free ride, cost is $50/person /year, marketing cost 10 million. How much new customer
we need to maintain profit before? / cooperate with other firm，for example uber，we will do
campaign will cost 25million annual. How many members we need to do incremental to earn profit?
Service experience: turn the one-time freeride activity into the form of collecting points, and exchange each swipe for corresponding points, thus promoting users to spend with credit cards
Product innovation: innovation in the design of the card face to promote the number of times users use the credit card, personal design of the credit card layout will promote the use of users
Refinement management: improve on service, such as opening a special line for customer service, s
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