Halcyon Bank Is Profitable and Nearly Out of Cash
Finance
medium30 min0 submissionsMcKinsey
Scenario
Halcyon Bank is a retail banking business in UK. Last year it reported £265 M of revenue, a gross margin of 27%, and a net profit margin of 5% — its third consecutive profitable year.
The CEO is baffled. The company has £8 M in the bank, has drawn £90 M of its overdraft facility, and has twice delayed supplier payments this quarter.
Balance sheet metrics:
- Days sales outstanding: 88 days
- Days inventory outstanding: 113 days
- Days payables outstanding: 36 days
Revenue grew 16% last year, and the sales team is targeting similar growth again.
Supporting data
liquidity
- cash m
- 8
- overdraft drawn m
- 90
working capital
- days sales outstanding
- 88
- days payables outstanding
- 36
- cash conversion cycle days
- 165
- days inventory outstanding
- 113
income statement
- revenue m
- 265
- net margin pct
- 5
- gross margin pct
- 27
- revenue growth pct
- 16
Your task
Explain to the CEO what is happening and what to do about it. Provide:
- Analysis — why a profitable company is short of cash.
- Risks — what happens if nothing changes.
- Recommendation — the specific actions you would take, in priority order.
Ready to move forward? Up next: Solstice Travel: Is This Target Growing, or Just Floating?Next question
How you'll be graded
100 points, 60% to pass.
- diagnosis30
- recommendation25
- risk assessment15
- financial analysis30
Hint
Reveal suggested structure
- Cash conversion cycle = DSO + DIO − DPO = 88 + 113 − 36 = 165 days.
- Cash tied up ≈ (CCC ÷ 365) × revenue.
- Growth makes it worse — every extra unit of revenue funds more receivables and inventory before it produces cash.
- Levers, in order of speed: collections, inventory, payment terms.
- Quantify the cash released by improving each lever.