CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
An analyst begins a company analysis by examining the firm's business model. Which of the following questions is most likely part of that step?
Asking how the company generates revenue and profit is part of business model analysis. That step describes customers, products, pricing and cost structure. Questions about justified multiples or discount rates belong to valuation, which follows once the analyst understands the firm's economics.
- AHow does the company generate revenue and profit?Correct
- BWhat is the justified price-to-book ratio?
- CWhat discount rate equates the dividends to price?
Explanation
A business model description explains how the company creates value, who its customers are, and how it earns revenue and profit. The other two options concern valuation mechanics, which come after the company's economics are understood.
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