Rank four businesses in one auto supply chain as buyout investments: a steel supplier, a component maker, a vehicle maker and a dealer group. Margins, capex, customer concentration and bargaining power are given.

Tvarit Components first, then Pathik Dealerships, Lohagarh Steel, and Aarambh Motors last. Tvarit keeps 14% of revenue after capex and its EBITDA holds 78% of its level in a downturn, because its parts are designed into models. Pathik keeps little but steadily. Lohagarh is a price taker whose cash disappears at the trough. Aarambh holds the most power but keeps 3% after capex and burns cash in a downturn.

Two numbers per business, each a line of maths. The cash margin, EBITDA less capex as a share of revenue, says how much of each rupee of sales the business keeps; the trough ratio, trough EBITDA over mid-cycle EBITDA, says how much survives a downturn. A buyout needs both, because the cash pays the debt and the trough decides whether it can. Lohagarh keeps 15% less 7%, 8%, and its EBITDA falls to 47% of normal at the trough. Tvarit keeps 14% and holds 78%. Aarambh keeps 3% and holds 40%. Pathik keeps 4.5% and holds 80%.

In a wedding, the caterer, the decorator and the band all depend on the family's budget, but the one with the only good hall in town names the price. Value in a supply chain pools where bargaining power sits, not where revenue is largest: Aarambh has the most revenue, but the link that cannot be replaced, Tvarit's sensors designed into five makers' models, is the one that keeps its margin through the cycle. Lohagarh sells steel at an index price to buyers far bigger than itself and keeps whatever the cycle leaves. Pathik is told its margins and targets by Aarambh, but its service work is steady and needs almost no capital.

Tvarit first: the highest cash margin, the best trough and power over its customer, so it can carry real leverage. Pathik second: thin margins, but 90% of EBITDA converts to cash, the trough barely dents it and service income is recurring; the cap on it is that one maker controls its economics. Lohagarh third: a respectable mid-cycle cash margin, but it falls to zero at the trough, so debt must be sized on a year with no free cash. Aarambh last: a business of Rs 15,000 crore of revenue that keeps 3% after capex and burns cash in a downturn is a poor base for borrowing, whatever its strategic position; it would also be the largest cheque by far.

Say this unprompted, because the interviewer wants to see you hold a view loosely. If Aarambh announced that its next models would dual-source Tvarit's sensors, Tvarit's power would fall at the next model change and it could drop below Pathik. If Aarambh's next models need far less servicing, Pathik's recurring income shrinks and it falls behind Lohagarh. And if Lohagarh had long-term contracts that pass steel price changes through to buyers, its trough would improve and it would move up. Name the test you would run for each: Tvarit's share of each customer's next platform, Pathik's service revenue per vehicle by model, Lohagarh's contract terms.