CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
After completing a base-case forecast, an analyst changes revenue growth, margin and capital expenditure assumptions to see the effect on projected earnings under different outcomes. This step is best described as:
This step is best described as scenario and sensitivity analysis. The analyst flexes key assumptions such as growth, margins and capital expenditure to see how projected earnings change, which helps assess the range of outcomes and the risk in the base-case forecast.
- Ascenario and sensitivity analysisCorrect
- Bgoodwill impairment testing
- Ccommon-size analysis
Explanation
Varying key assumptions to assess how outputs respond is sensitivity or scenario analysis. Common-size analysis restates statements as percentages of a base, and impairment testing concerns asset carrying amounts.
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