CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation
A retailer's analyst builds next year's revenue forecast by multiplying the expected number of stores by forecast sales per store, summed across three store formats. Compared with a top-down forecast, this method is most likely to:
The method most likely captures differences in performance across the store formats. Summing stores times sales per store for each format is a bottom-up approach that uses company-specific detail, whereas a top-down approach relies on macroeconomic and industry aggregates like GDP growth and market share.
- Arely less on company-specific operating detail.
- Bcapture differences in performance across the formats.Correct
- Cdepend mainly on forecasts of nominal GDP growth.
Explanation
This is a bottom-up approach, aggregating company-level drivers by format. It therefore reveals differences in growth and productivity across formats. Top-down methods rely more on macro variables such as GDP, and bottom-up methods rely more, not less, on company detail.
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