CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
A bottom-up forecast projects a company's revenue growth at 18%, while the analyst's top-down view has industry growth of 5%. The forecast would imply a large market share gain. The analyst's most appropriate next step is to:
The analyst should reassess the company-level assumptions to see whether an implied market share gain is justified. A big gap between bottom-up and top-down forecasts signals possible inconsistency, so mechanical averaging or ignoring the industry view would be less appropriate.
- Aaverage the two growth rates without further review.
- Breassess the company-level assumptions for consistency with industry growth.Correct
- Cdiscard the industry forecast because company data are more detailed.
Explanation
A large gap between the approaches signals that company-level volume, price or capacity assumptions may be inconsistent with the market. Reviewing them is better than mechanically averaging or ignoring the industry view.
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