CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
A firm's sales are 800 in the base year, and the industry is forecast to be 4,000 in the next year. The analyst expects the firm's market share to rise from 20% to 22% next year. Using a top-down approach, the firm's forecast sales are closest to:
Forecast sales are about 880. A top-down approach multiplies forecast industry sales of 4,000 by the expected market share of 22%. The base-year figure of 800 ignores the expected share gain, so it understates the forecast.
- A800
- B880Correct
- C1,000
Explanation
Forecast sales = industry sales × market share = 4,000 × 22% = 880. Using 800 ignores the share gain (the base year). The 1,000 figure is incorrectly 25% of the industry, not the forecast share.
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