Practice cases: Japan and South Korea
Three full cases: a rural railway in Japan, a Korean skincare brand growing in the US, and a private-equity deal for a Japanese parts maker with no successor.
Key takeaways
- Worked case: Kitase Line Railway: a rural line's loss nearly doubled.
- Worked case: Gyeolhwa Skin Lab: online or a big retailer in the US?
- Worked case: Should a fund buy Tsukimine Precision, a parts maker with no successor?
Three full cases: a rural railway in Japan, a Korean skincare brand growing in the US, and a private-equity deal for a Japanese parts maker with no successor.
Cover the solution and run each case out loud, ideally with a partner playing the interviewer. Ask your own clarifying questions, state a hypothesis, build a structure, and do the math on paper before you look. Then compare your synthesis with the one given, and read the strong and weak candidate notes. Each case is labeled Starter, Standard, or Stretch.
Case 1: Kitase Line Railway: a rural line's loss nearly doubled
Worked case
Starter: Kitase Line Railway: a rural line's loss nearly doubled
The prompt
The Kitase Line is a 40-kilometer rural railway in Japan. Its yearly loss has nearly doubled in five years, and the prefecture that covers the loss asks what it should do. The exhibit shows the key figures.
Difficulty: Starter. Format: interviewer-led, with an exhibit. Industry: Public transport. Region: Japan. Interview length: about 25 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Who owns the line?Answer: A company owned jointly by the prefecture, the towns along the line, and local businesses. The prefecture covers the loss each year.
- Why are passengers falling?Answer: The towns are losing population, and most remaining riders are high-school students and older people.
- Can costs be cut on the railway itself?Answer: Only a little. Most of the JPY 1 billion a year is track, signals, and staff that are needed whatever the number of passengers.
A hypothesis to say out loud: Costs are mostly fixed and passengers are falling, so my hypothesis is that fare rises cannot close the gap and the prefecture will need to change how the service is run.
The structure
- Loss = passengers x fare - operating cost
- Key: Passengers: population and who rides
- Fare
- Operating cost, mostly fixed
- Other ways to run the service
The exhibit
| Measure | Five years ago | This year |
|---|---|---|
| Passengers a year (millions) | 2 | 1.6 |
| Average fare per trip (JPY) | 400 | 400 |
| Operating cost (JPY billion a year) | 1 | 1 |
Working it through
1. Revenue five years ago
2.0 million passengers at JPY 400.
Revenue five years ago (JPY):2,000,000 × 400 = 800,000,0002. Revenue this year
1.6 million passengers at JPY 400, 20 percent fewer.
Revenue this year (JPY):1,600,000 × 400 = 640,000,0003. Loss this year
Revenue minus JPY 1 billion of operating cost. Five years ago the loss was JPY 200 million.
Result this year (JPY):1,600,000 × 400 - 1,000,000,000 = -360,000,0004. Cost per passenger
Each trip now costs this much to provide, against a JPY 400 fare.
Cost per passenger (JPY):1,000,000,000 ÷ 1,600,000 = 6255. Raise fares 10 percent
Interviewer: "The line expects 3 percent fewer passengers after a 10 percent fare rise." Revenue becomes:
Revenue after the fare rise (JPY):1,600,000 × (1 - 0.03) × 400 × 1.1 = 682,880,0006. Curveball: switch to buses
Interviewer: "The prefecture could turn the track bed into a road only for buses, called bus rapid transit, a model some regional lines in Japan have used. It would cost JPY 550 million a year to run, and passengers would fall a further 10 percent."
Result with bus rapid transit (JPY):1,600,000 × 0.9 × 400 - 550,000,000 = 26,000,0007. Improvement against the railway
The bus result minus the railway result.
Yearly improvement (JPY):(1,600,000 × 0.9 × 400 - 550,000,000) - (1,600,000 × 400 - 1,000,000,000) = 386,000,0008. Payback of the conversion
Interviewer: "Converting the track bed would cost about JPY 2 billion once." Payback on the yearly improvement:
Payback (years):2,000,000,000 ÷ ((1,600,000 × 0.9 × 400 - 550,000,000) - (1,600,000 × 400 - 1,000,000,000)) = 5.18
What the exhibit shows
Costs stayed the same while passengers fell by a fifth, so every lost passenger adds to the loss.
The recommendation
The prefecture should study turning the line into bus rapid transit, rather than rely on fare rises. First, the loss grew from JPY 200 million to JPY 360 million a year because passengers fell 20 percent while costs stayed fixed; each trip now costs JPY 625 to provide against a JPY 400 fare. Second, a 10 percent fare rise adds only about JPY 43 million of revenue and hits students and older riders hardest. Third, bus rapid transit would turn the loss into a small surplus of about JPY 26 million, an improvement of about JPY 386 million a year, and would repay a JPY 2 billion conversion in about 5 years, even with 10 percent fewer riders. Hold public meetings early, because many residents see the railway as part of their town, and set bus times around school hours.
Risks: Residents may oppose losing the railway; Passengers could fall by more than 10 percent after the switch.
Next steps: Count passengers by station and hour to design the bus timetable; Ask national and prefectural offices which grants could fund the conversion.
A strong candidate
Showed that costs are fixed, compared the fare rise with a change in the service model, and thought about residents and students.
A weak candidate
Recommended a large fare rise to close the gap, without asking who the riders are or how many would stop riding.
Case 2: Gyeolhwa Skin Lab: online or a big retailer in the US?
Worked case
Standard: Gyeolhwa Skin Lab: online or a big retailer in the US?
The prompt
Gyeolhwa Skin Lab, a South Korean skincare brand, wants to grow in the United States. It can focus on online marketplaces or sign with a large US beauty retailer. Which should it choose? Figures are in Korean won (KRW) billions unless stated otherwise.
Difficulty: Standard. Format: candidate-led, with interviewer dialogue. Industry: Consumer goods (beauty). Region: South Korea and the US. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- What does each option bring in by year three?Answer: Online marketplaces: sales of about KRW 30 billion a year. The retail chain: about KRW 50 billion a year across 1,000 stores.
- What are the margins?Answer: Online, gross margin after marketplace fees and delivery is 45 percent of sales, and advertising costs 20 percent. In retail, gross margin after the retailer's share is 35 percent, in-store marketing costs 10 percent, and a reserve for unsold stock that the retailer can return costs 5 percent.
- Any one-time costs?Answer: Retail needs KRW 6 billion up front for listing fees and displays. Online needs very little up front.
- Over what period should I compare?Answer: Three years.
A hypothesis to say out loud: Retail brings more sales but lower margins and an upfront cost. My hypothesis is that the two options are close over three years, so the answer depends on how sure we are about retail sales.
The structure
- Compare three-year contribution, then test how sure each option is
- Online contribution = sales x (gross margin - advertising)
- Retail contribution = sales x (gross margin - marketing - returns) - upfront cost
- Key: Sales retail needs to win
- Retailer rules and a smaller test
Working it through
1. Online, yearly contribution
Candidate: "KRW 30 billion at 45 percent margin minus 20 percent advertising."
Online contribution (KRW billion a year):30 × (0.45 - 0.2) = 7.52. Retail, yearly contribution
Candidate: "KRW 50 billion at 35 percent minus 10 percent marketing and 5 percent for returns."
Retail contribution (KRW billion a year):50 × (0.35 - 0.1 - 0.05) = 103. Online over three years
Candidate: "No real upfront cost."
Online, three years (KRW billion):3 × 30 × (0.45 - 0.2) = 22.54. Retail over three years
Candidate: "Minus the KRW 6 billion up front. Retail wins, but only by KRW 1.5 billion."
Retail, three years (KRW billion):3 × 50 × (0.35 - 0.1 - 0.05) - 6 = 245. Sales retail needs to match online
Candidate: "Retail must earn KRW 22.5 billion plus its upfront cost over three years at a 20 percent margin."
Break-even retail sales (KRW billion a year):(3 × 30 × (0.45 - 0.2) + 6) ÷ (3 × (0.35 - 0.1 - 0.05)) = 47.56. Curveball: the retailer's rule
Interviewer: "The retailer drops brands that sell less than KRW 40 million per store a year." Candidate: "Across 1,000 stores, that line is, in KRW billion:"
Delisting line (KRW billion a year):1,000 × 40 ÷ 1,000 = 407. Retail if sales land on that line
Candidate: "If retail sales are only KRW 40 billion, three-year contribution is:"
Retail at KRW 40 billion, three years (KRW billion):3 × 40 × (0.35 - 0.1 - 0.05) - 6 = 188. A smaller test
Candidate: "A test in 200 stores would need only this much of the upfront cost:"
Upfront cost of a 200-store test (KRW billion):6 × 200 ÷ 1,000 = 1.2
The recommendation
I recommend that Gyeolhwa start with online marketplaces and test retail in 200 stores before signing for all 1,000. First, over three years online earns about KRW 22.5 billion and retail about KRW 24 billion after its KRW 6 billion upfront cost, so retail is only slightly better. Second, retail wins only if sales reach about KRW 47.5 billion a year, close to the KRW 50 billion forecast, which leaves almost no room for error. Third, if sales per store sit at the KRW 40 million delisting line, retail earns only about KRW 18 billion. The 200-store test costs about KRW 1.2 billion.
Risks: The retailer may not offer the same terms later; Marketplace advertising costs may rise as more Korean brands compete online.
Next steps: Ask the retailer for a 200-store test on the same terms; Track repeat-purchase rates on the marketplaces for six months.
A strong candidate
Compared both options over the same period, found the sales retail needs, and used the retailer's rule to show how thin the margin for error is.
A weak candidate
Chose retail because its sales are larger, without subtracting the upfront cost or the returns reserve.
Case 3: Should a fund buy Tsukimine Precision, a parts maker with no successor?
Worked case
Stretch: Should a fund buy Tsukimine Precision, a parts maker with no successor?
The prompt
Written case: a private-equity fund is considering buying Tsukimine Precision, a family-owned maker of precision metal parts in central Japan. Using the data pack below, prepare three slides: is the deal attractive at the asking price, what are the main risks, and what should the fund offer? Money figures are in JPY billion.
Difficulty: Stretch. Format: written case, with a data pack. Industry: Private equity and manufacturing. Region: Japan. Interview length: about 45 minutes. The company is fictional and all figures are illustrative. In a written case you usually get 30 to 60 minutes with a data pack, then present your slides and answer questions.
Clarifying questions, with the interviewer's answers
- Why is the company for sale?Answer: The founder is 74 and has no family member or manager ready to take over. Many mid-sized Japanese companies face the same succession question.
- What return does the fund need?Answer: About 20 percent a year over five years, which is about 2.5 times the money.
- Who are the customers?Answer: About 40 percent of revenue comes from one car maker. The rest is spread across machinery makers.
A hypothesis to say out loud: The price looks modest at about 6 times EBITDA, but the plan depends on margin gains and one large customer. My hypothesis is that the deal returns a bit below target at the asking price, and that customer concentration is the key risk.
The structure
- Value today, value at exit, and the fund's return
- EBITDA today and the entry multiple
- Plan: revenue growth and margin gains
- Key: Exit value, MOIC, and IRR
- Risks: largest customer, founder handover
The exhibit
| Item | Value |
|---|---|
| Revenue today (JPY billion) | 12 |
| EBITDA margin today (%) | 12.5 |
| Asking enterprise value (JPY billion) | 9 |
| Debt available at entry (JPY billion) | 4.5 |
| Revenue in year 5 of the plan (JPY billion) | 14 |
| EBITDA margin in year 5 of the plan (%) | 15 |
| Debt at exit after paydown (JPY billion) | 2 |
| Expected exit multiple (EV/EBITDA) | 6 |
| Share of revenue from the largest customer (%) | 40 |
Working it through
1. EBITDA today
JPY 12 billion of revenue at a 12.5 percent margin.
EBITDA today (JPY billion):12 × 0.125 = 1.52. Entry multiple
Asking price divided by EBITDA.
Entry multiple (EV/EBITDA):9 ÷ (12 × 0.125) = 63. Year-5 EBITDA
JPY 14 billion of revenue at a 15 percent margin.
Year-5 EBITDA (JPY billion):14 × 0.15 = 2.14. Exit value
Year-5 EBITDA at 6 times.
Exit EV (JPY billion):14 × 0.15 × 6 = 12.65. MOIC
Equity at exit (exit value minus JPY 2 billion of debt) divided by equity invested (JPY 9 billion minus JPY 4.5 billion of debt).
MOIC:(14 × 0.15 × 6 - 2) ÷ (9 - 4.5) = 2.366. IRR check
1.19 to the power of 5 is about 2.39, a little above the MOIC, so the IRR is a little under 19 percent a year.
1.19 to the power of 5:1.19 × 1.19 × 1.19 × 1.19 × 1.19 = 2.397. Price that meets the target
For 2.5 times the money, equity invested must be JPY 10.6 billion divided by 2.5, plus the JPY 4.5 billion of debt.
Maximum EV for 2.5 times (JPY billion):(14 × 0.15 × 6 - 2) ÷ 2.5 + 4.5 = 8.748. Curveball: the largest customer wants a price cut
The car maker tells all suppliers it wants a 5 percent price cut. If Tsukimine accepts and its costs do not change, year-5 EBITDA falls by 5 percent of 40 percent of JPY 14 billion, and the return becomes:
MOIC after the price cut:((14 × 0.15 - 14 × 0.4 × 0.05) × 6 - 2) ÷ (9 - 4.5) = 1.98
What the exhibit shows
The price is 6 times EBITDA and the exit multiple is also 6, so the return must come from debt paydown and EBITDA growth, much of it from raising the margin, while 40 percent of revenue depends on one customer.
The recommendation
Slide 1, the answer: the fund should not pay the asking price of JPY 9 billion, but the deal works at about JPY 8.7 billion with protection on the largest customer. At the asking price the entry multiple is 6 times today's EBITDA of JPY 1.5 billion. The plan lifts revenue to JPY 14 billion and the margin from 12.5 to 15 percent, giving year-5 EBITDA of JPY 2.1 billion and an exit value of JPY 12.6 billion at the same 6 times. After debt falls from JPY 4.5 billion to JPY 2 billion, the fund gets about 2.36 times its JPY 4.5 billion of equity, a little under 19 percent a year, below its 20 percent target. Slide 2, the reasons and risks: first, the exit multiple equals the entry multiple, so the return depends on the margin plan and debt paydown, with no help from a higher multiple; second, 40 percent of revenue comes from one car maker, and a 5 percent price cut from that customer would drop the return to about 1.98 times; third, the founder holds key customer relationships and know-how, and skilled engineers may leave with the founder, so the handover must be planned. Slide 3, the offer: bid about JPY 8.7 billion, the price at which the plan returns 2.5 times, ask the founder to stay as an adviser for two years, and tie part of the price to keeping the largest customer's volumes and prices. As a next step, review the supply contract and price history with the car maker.
Risks: The largest customer may move work to a rival during the change of owner; Skilled engineers may leave with the founder; Automation savings may take longer than planned.
Next steps: Review the supply contract and price history with the car maker; Interview the five most senior engineers about their plans; Test the margin plan line by line with the operations team.
A strong candidate
Built the return step by step, compared it with the target, found the price that works, and tested the customer risk with numbers.
A weak candidate
Said the deal is attractive because the multiple is low, without calculating the return or looking at the largest customer.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
My notes on this lesson
0 of 5,000 characters. Saves automatically.
Completing lessons builds your skill levels and your readiness.
Spotted something wrong or out of date? Report a mistake. We check every report and correct the page.